If you are a beginner, Graham's book is fine for you.
If you are a beginner, Graham's book is fine for you.
Most of the other investment books i've read simply give what he said context, different examples and angle to what he had already taught.
I think people all see him as a "value" guy, the father of value investing and all that... and yes he does look for real assets in his investments, and he even diversify and not invest that much into any one stock... just to be safe i guess. But that does not mean he's not aware of growth stocks or that future earnings is where profits really is etc... heck, he even discusses technical analysis (and found it to be... impractical).
So while the Intelligent Investor could be considered "introductory", there's nothing "for beginners" - in the way of the common 120 page arts/basics of investing or investing for dummies - about it.
To say that Graham's is for beginners is like saying Sun Tzu's The Art of War; Machiavelli's The Price, Lao Tzu's Tao te Ching, Confucius' Analects... as books for beginners.
These books provide you with a framework, a philosophy, from which you apply and adapt to opportunities as you see them.
Sun Tzu doesn't tell you what trajectory to fire your cruise missiles, what type to use for the most damage... but he does tells you that before you throw a spear or a rock or a laser from the death-star, you'd probably want to look at this and that. Same with Graham - he won't tell you what calculator or program to use, won't find what stocks to buy from him, not now... but he will have taught you that before you buy Facebook, you'd probably want to value it first... and to value it, you ought to look at this and that... and if this and that does not now exists, you'd probably best to avoid it... but if you are sure it will exists (i.e. profit) and exists at this quantity then of course you are free to go ahead and invest (speculate).
I mean, Buffett has always said he won't invest in technology stocks; he didn't get into Intel when Noyce and Moore where acquaintances with him and was seeking capital... and recently bought IBM.
I don't think the IBM decision was made from generalisation of Graham's ideas or his value formula or such.
Accounting is the language of Business (or Investing).
When my curiosity grew for Investing I began with basic Accounting, and that is where I would recommend any aspiring beginner to start. Here's the book I started with:
Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports
A beginner might find reading The Intelligent Investor useful before attempting Security Analysis.
Security Analysis is more likely to be a tough read for a beginner. It's filled with examples & excerpts of financial statements of companies around the Depression period. Hence understanding Accounting is essential before attempting to read Security Analysis.
I've read it twice so far, and I re-read my notes on an annual basis. I also listen to the audio-book version when I'm travelling. It's truly 'the bible' of investing for me.
The following are Books I've read and would highly recommend (my investment hamper):
- Buffett FAQ - A compendium of Q&As with Warren Buffett
- The Essays of Warren Buffett: Lessons for Corporate America - Warren Buffett
- Security Analysis: Sixth Edition, Foreword by Warren Buffett
- Berkshire Hathaway Letters to Shareholders, 2013
- Buffett: The Making of an American Capitalist
- The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market
- The Little Book of Sideways Markets: How to Make Money in Markets that Go Nowhere - Vitaliy N. Katsenelson
Other Books I've read on the subject of Investing:
- What has worked in Investing - Tweedy, Browne Company LLC
- The Manual of Ideas: The Proven Framework for Finding the Best Value Investments
- The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit
- Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports
- Quality of Earnings
Of-course, Knowledge would be incomplete without an appropriate portion of Wisdom.
Books I've read on Wisdom, Psychology, & Behavioral Economics:“Wisdom is not a product of schooling but of the lifelong attempt to acquire it.”
― Albert Einstein
- Seeking Wisdom: From Darwin to Munger
- Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger
- Influence: The Psychology of Persuasion
- Thinking, Fast and Slow
- What Investors Really Want: Know What Drives Investor Behavior and Make Smarter Financial Decisions
And there are more books in the pipeline as part of my continual reading. I always take notes, and highlight text as I read. Once I'm done reading a book I type in my notes in Microsoft OneNote. Taking notes and re-reading them is an invaluable exercise to me. The learning never stops...
“Learn as though you would never be able to master it; hold it as though you would be in fear of losing it.”
It’s somewhat unusual to find somebody else on the road less travelled, so I just wanted to say G’day and acknowledge the quality and content of your post.
Some other possibilities off the top of my head that may be worthy of adding to your future reading list.
Bruce Greenwald – in relation to competitive advantage
Howard Marks – in relation to risk.
Seth Klarman – Risk-averse strategies
Michael Mauboussin - Psychology, & Behavioral
Jeremy Grantham, Ben Inker and James Montier are all at GMO and their strategy articles are always thought provoking. Montier books on value investing and behavioural investing are also good resources.
Thanks again for your posts.
Warren Buffet says he is 85% graham and 15% Phil fisher.
That 15% Phil fisher is important too, I would recommend reading his work as well, "Common stocks and uncommon profits is a good one"
I agree with Craft, it'd be good to bounce ideas off each other.
My poor wife could do with not having all conversations being diverted towards investing - she was saying how our kids and all her friends kids could just sing all the songs from Frozen and it's... "did you know that Buffett said there's no way you would spend hours scanning kids movies before you sat them down to get away for a couple of hours, that you'd just pick any Disney ones? That's brand power, that's blah blah....
I got a lot of reading to catch up on.
I second ValueCollector, Fisher's Common Stocks and Uncommon Profit is highly recommended.
I've also found that reading business/company biographies greatly enhance my understanding when analysing companies. Books like 'Behind the Arches', 'Be my Guest' by Hilton of Hilton Hotels, 'Made in America' by Sam Walton, 'Barbarians at the Gates'...
From behind the arches, I can tell right away how this potential franchiser won't go very far: that he charges his franchisees a fee, get a cut of their profits and on top, make profits by selling them inventories and stocks at greatly marked up prices. That's not how Ray Kroc built McDonald's.
Listening to "Built to Last" by Collins and Porras. A very thorough, scientific, analysis of what makes "visionary" companies. A very good book so far.
Thank you all for your comments.
Phil Fischer's book - the "scuttlebutt" approach! Yes, I've read it, just forgot to list it. Certainly a high recommendation for this book.
Yes, material from Howard Mark, Bruce Greenwald, Seth Klarman, & Michael Mauboussin are in my pipeline. I'll be keen to read stories from Mr's B. (Nebraska Furniture Mart), and Sam Walton too.
Craft - your location "road less travelled", coincidentally is similar to the title of my favorite poem from Robert Frost - "The Road Not Taken"
If I may deviate a bit, luutzu makes a good point about franchisee - 'Skimming off the top'. Essentially leaves the investor with very little value (or margin of safety), because hardly anything trickles down to bottom-line (especially if upfront capital commitment is lumpy).
My approach to valuing small business or franchisees is similar to the one I use for stocks. It's rough cut, loose numbers, and all in the head (perhaps a bit simplistic and somewhat of an educated 'guess'). I've tried this approach with small retail like local pizza shops, cafes, convenience stores etc and it's roughly in the right direction.
I will make a separate post on it a bit later and open the floor for criticism / suggestions.
Yet Milton haunts me:
Incessantly, and to his reading brings not
A spirit and judgment equal or superior,
(And what he brings what needs he elsewhere seek)
Uncertain and unsettled still remains,
Deep-versed in books and shallow in himself,
Crude or intoxicate, collecting toys
And trifles for choice matters, worth a sponge,
As children gathering pebbles on the shore."
(the irony is not lost on me btw)
Postscript to The Intelligent Investor
By Benjamin Graham
"We know very well two partners who spent a good part of their lives handling their own and other people's funds in Wall Street. Some hard experience taught them it was better to be safe and careful rather than to try to make all the money in the world. They established a rather unique approach to security operations, which combined good profit possibilities with sound values. They avoided anything that appeared overpriced and were rather too quick to dispose of issues that had advanced to levels they deemed no longer attractive. Their portfolio was always well diversified, with more than a hundred different issues represented. In this way they did quite well through many years of ups and downs in the general market; they averaged about 20% per annum on the several millions of capital they had accepted for management, and their clients were well pleased with the results.
In the year in which the first edition of this book appeared an opportunity was offered to the partners' fund to purchase a half-interest in a growing enterprise. For some reason the industry did not have Wall Street appeal at the time and the deal had been turned down by quite a few important houses. But the pair was impressed by the company's possibilities; what was decisive for them was that the price was moderate in relation to current earnings and asset value. The partners went ahead with the acquisition, amounting in dollars to about one-fifth of their fund. They became closely identified with the new business interest, which prospered.
In fact it did so well that the price of its shares advanced to two hundred times or more the price paid for the half-interest. The advance far outstripped the actual growth in profits, and almost from the start the quotation appeared much too high in terms of the partners' own investment standards. But since they regarded the company as a sort of "family business," they continued to maintain a substantial ownership of the shares despite the spectacular price rise. A large number of participants in their funds did the same, and they became millionaires through their holding in this one enterprise, plus later-organized affiliates.
Ironically enough, the aggregate of profits accruing from this single investment-decision far exceeded the sum of all the others realized through 20 years of wide-ranging operations in the partners' specialized fields, involving much investigation, endless pondering, and countless individual decisions.
Are there morals to this story of value to the intelligent investor? An obvious one is that there are several different ways to make and keep money in Wall Street. Another, not so obvious, is that one lucky break, or one supremely shrewd decision – can we tell them apart? – may count for more than a lifetime of journeyman efforts. But behind the luck, or the crucial decision, there must usually exist a background of preparation and disciplined capacity. One needs to be sufficiently established and recognized so that these opportunities will knock at his particular door. One must have the means, the judgment, and the courage to take advantage of them.
Of course, we cannot promise a like spectacular experience to all intelligent investors who remain both prudent and alert through the years. We are not going to end with J. J. Raskob's slogan that we made fun of at the beginning: "Everybody can be rich." But interesting possibilities abound on the financial scene, and the intelligent and enterprising investor should be able to find both enjoyment and profit in this three-ring circus. Excitement is guaranteed."
Thanks for that BuffettFAQ.com.
There's also a collection of 'Warren Buffett Interviews and Letters - Kamlesh Singhvee' on a torrent site.
Contain his partnership letters, Berkshire's to 2008 and a few interview transcripts.
for anyone interested, instructions here: torrents.pdf
That's a good example.
I didn't quite appreciate what he was saying when i read it before.
Uncle Warren also had his fair share of luck along the way of course, which in hindsight appears more pure genius. But what is luck except when opportunity meets a prepared mind? Its having the mindsight that is the difficulty and recognising the opportunity for an opportunity, otherwise (as the inspiration for Graham's most famous dictum states) "This too shall pass".
It is good to question your heroes
Currently reading 'Warren Buffett Partnership Letters'.
The letter from 1964 is particularly interesting.
It explains why the DOW is no pushover as an index of investment achievement. <- Very important to understand
It outlines his three main approaches:
- Generals, or Under-values stocks: A category of undervalued stocks determined primarily by quantitative standards, but with considerable attention also paid to the qualitative factor.
- Workouts: These are securities with a timetable, arising from corporate activity - sell-out's, mergers, reorganizations, spin-off's etc.
- Controls: They result from a situation where a cheap security does nothing price-wise for an extended period of time until we are able to buy a significant percentage of a company's stock. At which point we can probably assume some degree of, or perhaps complete control of the company's activities. Once control is achieved, the value of the investment is determined by the value of the enterprise (Management play's a VERY significant role here), not the irrationalities of the market.
The appendix of the same letter covers a great illustration of the Texas National Petroleum 'work-out', and also of Dempster Mill Mfg.
Have recently finished reading Letters from a Self-Made Merchant to His Son. Packed with timeless business wisdom.cover1.jpg
Surprised it's not mentioned in business/investing circles that much.
Also, may I ask if anyone's ready Henry Singleton's annual reports / letters to shareholders (during his active years at Teledyne)? If so could you please point me to them. Much appreciated.
There is a book about Teledyne / Henry Singleton called Distant Force, written by George Roberts (president / CEO after Singleton).
The book contains a CD which has PDFs of all annual reports.
I just bought it on Amazon... if it contains the Annual Reports will send you a copy... for price, haha jk.
Should be here in March.
Yeah I was aware of 'Distant Force'. I have it in my reading pipeline (which is packed until end of march so won't be reading this book until then). But didn't know it contained the letters as well, so thanks for pointing that out luutzu.
Also, thought I might mention Austin Donnelly here. A well respected, but less talked about investor. I've lined up a few of his books for some night reading for the next 3 weeks. Good to learn about a local investing legend (he was known in America too) and his work.
"cash - a call option with no expiration date, an option on every asset class, with no strike price.” Warren Buffett