Customer Reviews

Security Analysis: Sixth Edition, Foreword by Warren Buffett (Security Analysis Prior Editions)

5 star:		(28)
4 star:		(7)
3 star:		(3)
2 star:		(2)
1 star:		(2)

 

 

This is a re-issue of the 2nd edition in more modern form. There's no need to talk about the content and importance of this book to value-investor. But some reminder concerning this edition: 1) It is an abridged edition of the original 2nd edition (published in 1940). A total of 10 chapters have been deleted. 2) The Appendix Notes was also deleted. That's why the publisher could keep the pages at around 700+ something. 3) In compensation for the missing chapters, the publisher has attached a CD which contained the pdf format of the original 2nd edition (with 52 complete chapters as well as the Notes). I think that's really the most valuable part of this edition. That why I commented that it's a more convenient version of the 2nd edition.

To anyone who is reading this, Security Analysis is one of the greatest works ever written. In my opinion, you don't have time NOT to read it.

Of course, you shouldn't take every single idea written in any book, even the best, as the absolute truth. You should read Philip Fisher, William Nickerson, Adam Smith, John Burr Williams, John Bogle, Douglas Andrew, and so on, and take all the gems from each book, no matter how small (or how many), and piece together your own method of creating wealth. Don't be a sheep, be a sheperd, and put together your own flock.

That being said, read Security Analysis, and read it well. Highlight important points, draw arrows, create charts and diagrams representing key points.

Master this material.

You owe it to yourself. If you want to be an expert investor, you will put in this amount of effort in every book you read, especially the greatest works, like Security Analysis. You won't get rich by half-assing. This book is a priceless gem, and, although it may take several months of reading and research to understand its concepts, it will be well worth your while.

Security Analysis is a definitive and clear guide to understanding value investing, and conducting thorough fundamental analysis on a stock of your choice, allowing for an informed investment decision.

The insights you can draw from this book are directly and immediately applicable to the real world of common stock selection. At the very least, Security Analysis will provide you with:
- A framework/guidelines you can use to capitalize on opportunities in secondary issues
- A process for understanding balance and income sheets
- Perspective on corporate governance and stockholder-management relations

This classic is the best and the most thorough read in its class. Without a doubt, it also provides clear insight into the mind of a genius, Benjamin Graham. That said, this is not an easy read, a bit on a dry side, and does not allow you to "breeze through" its roughly 740 pages (appendix including) without understanding and building on the information in previous chapters.

What makes this 6th Edition worth the money (in case you already own the classic 1951 edition) are the additional essays and entries that are selected specifically for their relevance to today's changing world and the exuberant market conditions.

Security Analysis Sixth Edition, Foreword by Warren Buffett (Security Analysis Prior Editions)

As other reviewers have pointed out, this (sixth) edition of Security Analysis includes a reprint of the popular 1940 edition (Warren Buffett's favorite), minus some chapters. The deleted chapters, which can be found in the CD that accompanies the book, make room for (new) general introductory remarks to this edition and also to the eight major parts of the book, written by a variety of modern commentators. If all you really want is the 1940 edition, then the better choice for you is probably to buy the currently in-print reprint that's available (for a lower cost that this sixth edition). You could also buy one of the books actually printed back in 1940, but that will set you back big bucks, because original versions of Security Analysis are collectors' items today. For example, a good copy of the first printing of the 1934 edition easily runs into five figures.

Concerning the 1940 edition (or just the 1940 chapters contained in this sixth version), other than for the references to corporate examples from the 1920s or 1930s, the content is amazingly relevant to today's investing. I had read Security Analysis (the fourth edition) many years ago, and I had forgotten just how clear, precise, insightful and truly sophisticated Graham and Dodd were. Remarkably, in many instances this 1940 edition does a better job describing 21st century investing issues than the majority of material written today.

What you get with this sixth edition that's not available in the other editions are a short (two page) foreword by Warren Buffett and 10 essays by some of the most well-regarded modern investors and authors. Indeed, it was an honor to be asked to contribute to the sixth edition. The essays run about 15 pages, on average, and many of them are highly informative and useful. Those written by Seth Klarman, James Grant, Roger Lowenstein and Bruce Berkowitz were my favorites. As good as they are, though, they basically provide useful insights and more modern applications, rather than plow much new intellectual ground. It's hard to improve much on Graham and Dodd, even after 70 years. If that seems hard to believe, read the book and see for yourself. Finally, if you haven't already read the 1940 edition, which book should you buy--a 1940 reprint or this sixth edition? My choice is the sixth edition.

This book is not a step-by-step tutorial on how to invest, but a lengthy philosophical outline of 'value investing' along with numerous real-world examples, which although they are 70 years old are still materially valid today. You will need to understand accounting and how to read financial statements before reading this book, and good experience in security analysis is also recommended. Even so, the book is lengthy and takes time and effort to read. Is it worth it? Well, it was a valuable read for me because I am serious about my investments, but for someone who just wants a quick-and-dirty guide this book is not for you.

The one big difference between the application of Security Analysis in Graham's days and now is probably the advent of cash-flow statements which makes analysing a company's true earnings easier.

Concerning the differences between this edition and previous editions, there are essays from various money managers in this edition but some rather important chapters from the original book have been removed to make room for these essays (the missing chapters can be found on the enclosed CD.) Some of these new essays are informative and well-written, others less so. Overall I would probably have preferred essays similar to those found in the updated version of Graham's book The Intelligent Investor, which were detailed modern-day analogies of Graham's examples. There are also some erroneous page references here and there in this edition of Security Analysis.

All in all, if you already have an earlier edition of Security Analysis you'll probably not find anything truly worthwhile here. If you don't own a previous copy of Security Analysis, and you're serious about your investing and can devote the time and effort to reading this book (or at least the parts that are relevant to you), then it's recommended as a solid foundation for the 'value' approach to investing. In fact, when you start thinking like Graham you understand that 'value investing' is the only true way of investing, as opposed to speculation.

While it is convenient to have a lot of Security Analysis on Kindle, I am disappointed that whole chapters are removed from the book and that, for Kindle readers, there is no CD with PDF filed included that one can refer to (these are referred to multiple times in the text).

Again, handy to have much of this great book on Kindle, but you are not getting the whole book, so it is a rip off for $42.00.

I am a Wall Street professional who gets paid to make sense of the markets both on the way up and down, and this masterpiece happens to be my single biggest enemy. I have spent countless hours with seasoned investor explaining the limitations of G&D style value investing. It is a great approach within the context of optimism - tomorrow is better than today. When this condition is not met, the framework fails to deliver what it promises - outsized returns, often thought of as reward for diligently doing your homework.

It is little wonder then that value investing, even its finest form, delivers unexpectedly large pain in economic downturns. Why this approach became the holy grail and remains largely unquestioned is because over the last several decades US economy has mostly expanded ('tomorrow is better than today' condition was met).

In downturns such as the one we are currently experiences, the giants of value investing on average received D grade. And on average their investments dropped 65% when the market was down 50%, which is fine if you can live with a required appreciation of 150% to get to par.

A more complete framework is incompletely discussed in the book "Style Investing" by another Wall Street prime mind, Rich Bernstein. While I am not suggesting that Style Investing: Unique Insight Into Equity Management (Frontiers in Finance Series) is superior to G&D's classic, it certainly does expound a broader framework within which to be or not to be a value investor. In my opinion, it would be a worthwhile endeavor for an investor to extract whatever they can out of that book and then rethink value investing in the expanded context.

Here are a few other (and at times somewhat densely written) books for your consideration

Beating the Business Cycle
Business Cycles: History, Theory and Investment Reality
Business Cycles: Theory, History, Indicators, and Forecasting (National Bureau of Economic Research Studies in Income and Wealth)
Forecasting Financial and Economic Cycles (Wiley Finance)
The All-Season Investor: Successful Strategies for Every Stage in the Business Cycle

It is during major market dislocations that most money is made and lost, diversification disappoints, and value investing can be a friend or foe depending on where one is in the downturn. When history is firmly etched on investor's mind, it is much easier to see how it is not that different this time, even though it is always a little different. Below are some of the better compilations of investment history that in my view should form part of the education of a developing investor.

Anatomy of the Bear
The Holy Grail of Macroeconomics: Lessons from Japan's Great Recession
Panic of 1819 Reactions and Policies

And finally, those looking to refine their investment valuation discipline beyond the traditional measures of low P/E, P/Book, P/Sales, P/Cash Flow, etc. should consider the more advanced and more accurate stock picking measure -- Equity Duration. 'Style Investing' introduces the concept, and its performance as a valuation measure of choice is discussed in the paper by Dechow & Sloan, 'Implied Equity Duration: A New Measure of Equity Risk'

Good luck!

The 6th edition is the 2nd edition minus 10 chapters and the very valuable and data rich appendix however with new introductory chapters by various value investors. Although the introductory chapters are enlightening and somewhat informative, I would rather have had the valuable appendix. I wish they could have made the introductory chapters less lengthy and still included the appendix. I felt that many of the introductions although informative were rather windy at times and could have been reduced significantly and still gotten the point across. I know the appendix is on the CD, but that is a pain in the butt to have to look something up on CD as you're reading the book. It would be nice to just flip to the back quick to reference something up as you are reading. Honestly, if I had to do it over again and choose only 1 edition, I would have purchased the more practical and full text 2nd edition.

Benjamin Graham was the intellectual godfather of all value investors. If you're in to value investing (basically the principle of buying stocks relatively cheaply and selling them once they've appreciated in value) then this book is a must read to understand why modern value investing needs to be fundamentally different than Graham's initial explanation. Graham is one of the seminal influences on the investment careeer of Warren Buffet, however, you'll quickly realize that Buffet identified major enhancements to Graham's original principles and practiced value investing on a fundamentally higher, and more lucrative, plane. Read Graham and Buffet side by side, particularly their two parallel books on interpreting financial statements and you'll see how far Buffet pushed the art. No value investor should depend on Graham alone, given the advances promulgated by Buffet, but no value investor can afford to misunderstand the foundational principles. Standing on the shoulders of giants requires that we first grasp their point of view.

If you're an investor and haven't read security analysis, you really should. First, it is chalk full of very helpful information that is the only resource you need to understand investments. Sometimes it is dated but even then the history lesson is important. For instance, you will definitely be prepared for the next "idiot bubble" in the parlance of Charlie Munger because the book examines overvalued stocks and bonds with real examples. You definitely would never fall into the "real estate values have never declined" fallacy if you had the rudimentary understanding of history this book provides. So, all and all this book is a must read for serious investors.

So the material for this book is obviously five star... but I'm quite upset with the missing chapters and appendix. I don't think we need the additional commentary from respected value investors if chapters are missing. I had to read the missing chapters in .pdf on my Kindle DX which is sort of annoying. It would be forgivable if all the chapters we completely out of date but only the one on options was totally obsolete. So, the lack of a complete book was irritating.

I bought the book on the Kindle and in hardback. Get the hardback if you can afford it. It just looks better with all the tables.