Customer Reviews

Security Analysis: The Classic 1951 Edition

5 star:		(13)
4 star:		(6)
3 star:		(3)
2 star:		(1)
1 star:		(1)

 

 

I have read this book twice now - one time is certainly not sufficient to absorb all of its wisdom - ten times probably would not suffice. There are some people who question whether this book is still relevant because it was published over half a century ago. I doubt they ever took the time to read it, or if they read it, I doubt that they really thought about it.

The book's central point is that an investment should be made based upon a thorough investigation of the investment's merits - not on the market generally, or interest rates, etc. It does not promise an easy path to riches - the techniques take work. However, Graham and Dodd's theory of focusing on safety of principal plus satisfactory return has been time-tested, and no one can question the success that Graham's disciples such as Warren Buffett have enjoyed.

A few interesting points: the book is not limited to equity investments. As Security Analysis highlights, equity investments and debt investments are similar insofar as both lay claim to the underlying assets of a company (they are different in the priority they have if the company does not make money).

The book also contains an excellent section on analyzing financial statements. Many of the accounting concerns that this book raised in 1951 occured during the Internet bubble (such as the effect of stock options on a company's value and the use of write-offs to manage earnings). So much for the book being dated!

Even though the book does spend some time analyzing utilities and railroads, the underlying approach used there does have some relevance to other companies.

Although many people simply associate Benjamin Graham with low p/e ratio investing, Security Analysis discusses various means to review and understand an entire company. Thus, although p/e ratio is one factor Security Analysis considers, it is far from the only one.

The book also contains a great discussion of how dividends may affect a company's value (largely based, it appears, on the work of John Burr Williams, author of "The Theory of Investment Value"), as well as an insightful overview of stockholder/management issues.

If I have any criticisms of this book, it is that it pre-dates the use of cash flow statements and that the writing is at times a bit slow-going. That being said, the book itself is invaluable, and I can definitely trace its effects upon any number of other works, all of which become more relevant when read in conjunction with Security Analysis. Examples include:

David Dreman - "Contrarian Investing: the Next Generation"
Martin Whitman - "The Aggressive Conservative Investor"
Mary Buffett - "Buffettology"
Rappaport, Mauboussin - "Expectations Investing: Reading Stock Prices for Better Returns"

Although these books may use different approaches than Security Analysis, it is obvious that the methods set forth therein stem, at least in part, from the theories set forth in Security Analysis.

Given that this book can be heavy, it might be useful to read Chris Browne's "Little Book of Value Investing" or Graham's "Intelligent Investor" first. In many respects, those books are really less intensive versions of Security Analysis. However, ultimately, Security Analysis is a more useful work because of its in-depth nature.

What a great book! It was long, long-winded at times, and full of small print and not too much white on the pages, but full of content on the subject at hand: security analysis. I just finished reading the 3rd edition (2004). The original edition was published over 50 years ago and for the most part it is just as applicable today as it was way back in 1951.

The intended audience for this book is obviously people who do security analysis for a living. They might be people working on Wall Street, analyst firms, investment firms, hedge funds, mutual funds, or merger/acquisition departments. But I don't fit into any of those categories.

I'm a SCORE volunteer counselor who coaches small business owners and wanta-be entrepreneurs on starting and improving businesses. The principles included in this book are things my clients need to understand and be adept at using. Could the book have been titled Financial Analysis instead? Maybe. I was most interested in reading the following sections:

>>Analysis of Financial Statements
>>The Valuation of Common Stock
>>Stockholders and Management
>>Security Analysis in Action

I highly recommend this book for anyone who is interested in better understanding how to evaluate companies and what they are really worth so they can be made better and sold for more. It is not light reading, and if you are used to zipping through a book in a few hours like I am, then skip this one.

I didn't see any discussion on cash flow as something to consider when evaluating a company for financial soundness. And I think it should have been included. Also, I didn't really like having to read about railroad and public utility companies. Clearly there could have been some more interesting companies to talk about when making points. All in all, there's lots of wisdom presented in this huge tome and it's invaluable. 5 stars!

This book is rightly considered the true bible of stock analysis, and is famous also for being how Warren Buffet approaches investing, as Graham was Buffet's own teacher.

The book has extensive chapters dealing with every topic useful to the subject of stocks, from reading financial statements (one of the things that almost all amateurs could probably be better at, including myself), to assessing the company's true value, breakup value, etc. As one writer here already said, this is no easy path to riches, since this is a true discipline that takes a lot of work, but it can be done.

However, late in his life, Graham was interviewed and said that his views had changed, and made a very important statement at the time. He said that for many decades, exhaustive methods of stock analysis had been profitable, but that was no longer the case. One must remember that the goal of his method is often not so much for determining the true value of a stock to be bought as an investment, so much as whether it should be liquidated, and the parts sold off, which are worth more individually than the company itself.

In other words, the parts are worth more than the whole, and his method was a profitable way to assess likely candidates for this process. If I remember right, Graham himself was involved at least once in regard to a certain company as an activist investor who successfully pressured management to accept a buy-out or liquidate the company.

In fact, at the time of the interview, Graham said that "He was no longer a proponent of detailed methods of stock analysis." He said that there had been a time when that was quite profitable, but that times had changed, and he now favored a cash-flow oriented approach. This method has many adherents now, and Standard and Poors, for example, is known today for using a proprietary cash-flow analysis. Basically, the true value of a company, and therefore its stock, is essentially the present discounted value of all future cash flows.

That having been said, I still learned a lot from this book, and it has probably never been equalled as a rigorous text on the skills to do true stock evaluation and value-style investing.

Ben Graham is the Father of Security Analysis. Period. With over 85% of fund managers unable to outperform the indices over the past 20 years, his wisdom is timeless. While his influence as Warren Buffett's mentor is well documented, I suggest you read an article from 1984 by Buffett, titled "The Superinvestors of Graham-and-Doddsville", published in Hermes, The Columbia Business School Magazine. Buffett lays out pretty clearly how Graham directly influenced a number of other investors- it's basically the intellectual lineage that started with Graham's teachings. Their collective portfolio performances probably at least doubled that of the S

Mr. Graham should have been a law professor because that is exactly how his book reads. His main determination of value takes about 30 chapters to develop and in the end it is nothing more than an average P/E ratio, over the past 10 years, used as a multiplier to determine future profitability. Aside from that, his formula definitions are vague; as is alot of the text.
Don't get me wrong, the man is brilliant, but as per his writing style he is very vague, assumes a lot, and will leave most of you thinking what was that?

This is the a must read for any investors. It is, however, quite difficult for beginners to comprehend, though. At least I didn't understand it quite well until after I took Corporate Finance, Accounting, etc... and studied for my CFA exam.

I'd recommend beginners read Graham's "The Intelligent Investor", which help create a concrete basis of your investment philosophy.

as with all Graham books you must look thru a ton of old examples, and outdated material to find the few nuggets of gold. Not that it is not worth the mining. It would make a great book if somebody that really new anaylsis could redue the book with up to date examples, and a few less pages.

Getting into investing is tough. Ben Graham's timeless wisdom is the only worthwhile advice an individual would need for making this journey a 'safe' and profitable venture. That said, this book, in my opinion, appeals to a wide audience. Yes, it can be extremely complicated at times, but my point is, if you understand just a fraction (not of just one topic, but a lil bit of everything) of what he is trying to say, you will be better at managing/growing your hard-earned money. Like any other book, the better 'tuned' a reader is to Ben Graham's words, the richer the rewards he/she will reap. Needless to say, most of us are not perfectly tuned in, like Warren Buffett or Micahel Price were/are. But, then again, while making 100s, 1000s, or millions is not as good as making billions, it certainly is satisfactory.
Furthermore, I like this book from a theoretical and practical standpoint. Many other books/textbooks on finance and accounting are just miserable in the sense that the authors 'armed' with PhDs go on and on and on with theory about the items in a balance sheet or about EBITDA valuation without bringing them into advice a practioner can use simply because they do not deeply know/understand the purpose or steps involved with valuation techniques. And, generally, they convince you that they do know their stuff by using a MBA/PhD/CPA/CFA to excessively focus on one area without being able to effectively integrate with other areas in finance, thereby defeating the purpose of investment theory. However, there are exceptions to this statement.

This book is thick, technical, and tough. If you have chosen a financial career, you need to have this on your bookshelf. It also wouldn't hurt to read it.

As a novice of finance, I consider this the "Bible of Finance." It is a classic, well written and practical. Ultimate book on value investing and unravels the arduous mysteries of balance sheets, income statements. Teaches you how to analyze stocks using company financials. Must read.