Customer Reviews

Value Investing Made Easy: Benjamin Graham's Classic Investment Strategy Explained for Everyone

5 star:		(6)
4 star:		(4)
3 star:		(2)
2 star:		(0)
1 star:		(3)

 

 

Some reviewers criticize Lowe, claiming 1) the book is too simple, 2) she simply quotes people like Buffet, Graham and Lynch, and 3) she doesn't explain her calculations enough. I disagree on all counts! You really should take a look at this book; it's an excellent all around introduction.

1. Is the book too simple? No, it's supposed to be simple. Lowe herself explains in the title, and in the preface, that this book is meant to be ``Graham and Dodd made easy''. She did a good job; that's just what the book is. After you read this book, you should think about moving on to Graham and Dodd--but this book is a good start.

2. What's wrong with quoting successful folks like Buffet, Graham and Lynch? Remember, this book is ``Graham and Dodd made easy'', so it's bound to contain lots of references to Graham and Dodd. Naturally, it also contains quotes from Graham's most successful disciple, Warren Buffet. The quotes are well chosen, so Lowe has done us a service. She has distilled the wisdom of the master.

3. Should Lowe make recommendations, like ``use this formula; don't use that one''? I don't think so. The problem with value investing is that no one formula perfectly captures business worth. If there were a simple formula, then everyone would be a millionaire. The fact is that you need to know several different ways of looking at company value. Each way is reasonable. Your personality, viewpoint and tolerance for uncertainty decides how you weight these different variables. However you do it, you will be exactly as successful as you are careful and businesslike.

So all around, I think this book is an excellent introduction to value investing. It captures the spirit of great investors, while remaining readable and clear. Well worth your time.

I like the idea, but...

Having recently undertaken the wonderful journey of studying Benjamin Graham and Warren Buffett through reading most of their writings, I felt obligated to comment on this book. Many important concepts are nicely explained, and the format is pleasing, however, a disturbingly significant number of facts presented are gross misinterpretations.

The author does a nice job of explaining commonly used Wall Street terminology and concepts, for the novice. However, she fails in the infinitely more important task of consistently explaining the core concepts of investing (and not just stock speculating -- as so many of us all too often do).

Two (among the many) misleading points involve investment diversification and Buffett's used cigar-butt approach. She implies both Graham and Buffett whole-heartedly embrace diversification. Unless I have been reading the wrong Graham and Buffett, they certainly do not do so, unconditionally. The author further misrepresents Buffett when she actually leaves it that he finds the "cigar butt" approach, a wise way to buy businesses. He indeed called that method, "foolish" [Mr. Buffett: if that is no longer the case, please excuse my error.]

If you are searching for enlightenment, the way I was, you will be 1000 times better served to read "The Essays of Warren Buffett", arranged by Cunningham and, of course, Graham's "The Intelligent Investor".

The author touts the book as a distillation of the key concepts of Benjamin Graham's classic text, Security Analysis, but fails to elaborate on a key point repeatedly mentioned in Graham's book. Graham noted that at times, some bonds make for better investments than stocks as a class of investments, and at other times, some stocks make for better investments than bonds as a class. This readily follows from Graham's definition of an investment, which he stated most succinctly in his book for the novice investor, The Intelligent Investor:

An investment is any activity which provides safety of capital with a reasonable expectation of income. All other activities are speculative.

Lowe's book concentrates solely on stocks, and ignores the potential of bonds as an investment. As a result, the book distills only some of the wisdom of Security Analysis, which, by the way, can be found in a more accessible form in Graham's book, The Intelligent Investor.

By saying this, I do not mean to imply that Value Investing Made Easy is not a worthwhile read. Rather, it is the book the novice should read if and only if he or she does not want to spend the time reading Graham's Security Analysis, a formidable text nearly a thousand pages long (however, in Graham's defense, most of these pages are devoted to graphs, charts and numerous examples of the application of his techniques).

Lowe's book presents most of the important tenets necessary for picking stocks along the lines of Graham and Dodd (and Warren Buffett). A careful reader will notice, however, that the stock universe for which the tenets are applicable limits him or her to solely the proven performers. Among other things, these stocks typically, but not always, pay dividends, or have a history of doing so.

I found the text to be somewhat of a letdown because most of it was devoted to the justification for value investing, and not on the techniques of value investing per se. The book relied heavily on notable anecdotes- star performers of value investing fame such as (yep, you guessed it) Warren Buffett, Irving Kahn and others, and a bit less on the techniques in action as I would have liked.

However, in its defense, the book contains several pearls of wisdom that the novice investor would do well to know like the back of his or her hand. The book lays down an appropriate definition for intrinsic value, provides a satisfactory explanation of the role and importance of assets and dividends, and most important, the use and limitations of long-term trends in earnings and dividends to make assessments of stock investments.

On a personal note, I feel the most important lesson of the book is contained on Page 20 of the text- How Trustworthy Are the Numbers? Here, Graham warns us that, "Deliberate falsification of the data is rare; most of the misrepresentation flows from the use of accounting artifices, which it is the function of the capable analyst to detect. Concealment is more common than misstatement."

I leave the potential reader with one critical admonishment taken from the text (Page 21) which is perhaps the most relevant of all of Graham's tenets for the novice investor:

"When an enterprise pursues questionable accounting policies, all of its securities must be shunned by the investor, no matter how safe or attractive some of them may appear."

Janet Lowe explains that value investing a-la Benjamin Graham is not a simple matter of following a cookbook recipe, i.e. screening stocks based on x number of factors, ratios, or other factors being met. Instead, it is a philosophy which must be applied by calculating several measurements of value which, when combined with a "margin of safety", diverse portfolio and enough time, should produce gains. My problem with "Value Investing Made Easy" is that Ms. Lowe fails to adequately explain the variables in her value formulas, repeatedly quotes other investment authors directly from their books, such as Peter Lynch out of "Beat the Street," and takes the easy way out by consistently presenting either or alternatives without recommending when to pick a particular alternative, one of which will work, the other of which will fail or not work as well, but had you chosen her other recommendation, it would have worked better. An example of Ms. Lowe not adequately explaining the variables in her valuation ratios is her attempted application-explanation of Ben Graham's formula for intrinsic value, which is the most important measurement in the book. The formula is E(2r+8.5) x 4.4/Y with E representing earnings, r representing earnings growth, and Y representing the current yield on AAA corporate bonds. Perhaps you are asking yourself which earnings E represents, the trailing 12 months, the current years, etc. I sure did. Same thing with r, is it the percentage increase of earnings growth from the trailing 12 months to the current year? Ms. Lowe simply assigns a value for each in her example without explaining its basis. As for quoting other authors, and investment gurus I might add, Ms. Lowe repeatedly quotes Peter Lynch directly out of "Beat the Street." If I had known this, My time would have been better spent reading "Beat the Street" again. Ms. Lowe also indirecly quotes Warren Buffet ad nauseum. Finally, and perhaps most frustrating of all, Ms. Lowe fails to take a position on what she believes to be a winning value investment strategy or strategies, i.e. hard and fast strategies to follow based upon particular objectives or risk tolerance (Note I did not write market conditions/timing). Perhaps this was her intent since she was attempting to explain the philosopy of value investing. However, if, as a potential reader, you are seeking advice or instruction on applying a successful value approach to investing in common stocks, I would strongly advise you to turn elsewhere. J.K.S. of Anchorage Alaska

This is a more readable, easily digestable version of the Graham & Dodd classis "Security Analysis". This book is basically Benjamin Graham and Warren Buffett in a nutshell. If you don't already own it, buy it.

The book takes a step by step outlook on investing and moves along at a pace that keeps you interested. At the same time it gives enough depth so if you want to learn more, you can understand the basics.

This book was a decent introductory work to value investing a la Ben Graham, but it was just that, an introduction. It is quite a bit more readable than Security Analysis or The Intelligent Investor, but it also lacks the depth of these works.

In particular, this book does an excellent job of summarizing Graham's thoughts with respect to ratio analysis, management analysis, and provides a general overview of how to view financial statements. That being said, it does not explain how to "drill down" into financial statements and adjust them for various condictions as Graham sets forth in "Security Analysis."

Another weakness of this book is that it does not delve into anything other than common stock ownership. This might be a particular problem, as Graham, for example, advised that any issue senior to the one being analyzed must be viewed as debt, since it has a prior claim on the company's earnings. Hence, using Graham's analysis, dividends in respect of preferred stock would be deducted from earnings (as a payment on debt), whereas they are generally considered dividends on a par with common by many investors. Similarly, Security Analysis also discusses adjusting financial statements (for purposes of analysis, including ratio analysis) for warrants, etc.

In all, though, this book is a much easier read than any of Graham's works, and it certainly provides a good introduction to his theories of investing. I would recommend that anyone who likes what is said in this book read Warren Buffett's annual reports and any of Graham's books as well.

Hardcore value investors do not find this book useful because it is a shorter remake of the original version, Security Analysis by Graham and Dodd. Copy will never be as good as the original. However, whenever I recommend the original work to individual investors, they complain that the book is too hard to read and is not as applicable in today's world. The author wanted to write a book that changes that and explain value investing in simpler English.
The most important concepts of value investing are definitely discussed in this book. They are:

* Margin of Safety
* Intrinsic Value
* Stocks are ownership interest in companies
* Mr. Market analogy

I highly recommend this book to anyone who finds the original work of Graham and Dodd too hard to read.

- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market

The title of the book says it all. It may not be the best book for value investing, but it is the best one for getting started. Very easy to read. A no nonsense guide to value investing. You should be able to learn a lot from the book. A must have!

This book reviews all the classic methods of Benjamin Graham, the Columbia University professor who taught the brilliant Warren Buffett and other superior investors what they know. It explains these things so that any one us can follow the methods. A lot of terms and words that seemed mysterious before now become pleasantly clear. If you want to invest, rather tham toss the dice in Las Vegas, read this.