It took me a month, but I just finished the last page of Ben Graham's 1934 edition of Security Analysis. If you have not read this, you should. If you have plodded through the agonizing prose of the Fifth Edition, you need to recognize this is a different book. When you put the two side by side (I have them both) its like night and day. (Graham didn't write the Fifth Edition, and over four editions, it seems like the game whisper down the lane, where the original sentence comes out unrecognizable after five repeats). There is only one investment text I have ever read, and I have read most of them, that is close. And that is the complete compilation of Berkshire annuals.
Graham has a reputation for being boring. Some parts of the book are - he starts with 250 pages on bonds which has some pearls of wisdom, but is pretty boring. If you want to skip that, read the first chapter, then skip to the chapter on speculative bonds, which leads into the 300 pages on common stocks and financial statement analysis. I find him to be quite entertaining. Very funny at times, but only if you really understand where he's coming from. This is by no means a book for beginners, but the kind of thing the regular contributors to this thread should eat up.
Writing in 1934, Graham was looking at a market that had dropped by 90% after a "new-era" bull market much like today's. In his description of the good times before the crash, we see some familiar faces. They had "tech stocks" then - although they are things like radios. There were stocks trading at 100 times earnings that didn't earn a dime two years before. He writes a whole chapter about the evils of stock options. Several chapters have detailed analysis of what we call today manipulative use of "one-time charges". They even had crazy IPOs then. And the psychology he describes in 1929 looks very much like today.
And in 1932 40% of all stocks on the market traded below net current assets at some point during the year. Which is why what scared me the most about this book is that it does not seem dated at all. I won't say it could have been written yesterday, but I will say it could have been written in 2004.
History doesn't necessarily repeat, but it often rhymes.
JJC |
