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Strategies & Market Trends : Value Investing
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To: Lazarus who wrote (60942)7/13/2018 4:15:55 PM
From: Graham Osborn2 Recommendations

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E_K_S
Lazarus

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Like most investors, Graham evolved during his lifetime. He was buying stocks in the mid to late 20s and then suffered the first downdrafts of 1929-1930, borrowed money, and bought more. He lost A LOT of money. So he published the first edition of Security Analysis in 1934 looking at stocks from a Depression mindset. And Buffett was born in 1930. Buffett started investing in stocks in the late 1930s - early 1940s.

As the market gradually rekindled, Graham started to relax his requirements. Graham-Newman purchased its interest in GEICO in 1948 - a purchase Graham would not have made 10 years earlier. My guess is the purchase price was around 8-10X earnings for a company growing at maybe 20% annualized, based on Buffett's report written a few years later.

It is probably true that neither Graham nor Buffett would have bought Facebook, Twitter, or Amazon. In the case of Google though, I think Graham/ Buffett might have bought at 17X earnings in 2008. The only tricky thing is it was only 4 years out from IPO and I think Buffett likes 5 - plus he probably didn't feel comfortable with the business model at that point.

In his later years Graham became an advocate of index investing - basically another way of saying he didn't see a lot of opportunities in the market in the late 60s. Ironically, he died 2 years after the biggest stock market crash since the Great Depression - so he probably would have revised that view to take advantage if he had still been actively engaged in the markets at that point rather than living with his multiple girlfriends.

At the end of the day we all seek to do two things: (1) buy at a discount to present intrinsic value (2) buy companies that grow their intrinsic value at a decent compounding rate for long periods of time. The ability to do (1) often depends on where you are in the economic cycle - the 1930s were obviously a good time. But there are virtually always opportunities to do (2). Which is good, since most of the money made in equities is via (2).
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