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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: James Clarke who wrote (4977)	9/7/1998 2:45:00 AM
From: Paul Senior	Read Replies (1) \| Respond to of 78595

Jim, I've gone back to my '73 ed. of "The Intelligent Investor" and pulled out a '76 analyst interview with him. I just don't see where he explicitly gives those requirements you list to be required for net-nets. I see where there are such requirements as you say in his "Rules for the Common-Stock Component" for the "Defensive Investor". But from what I can tell, Dr. Graham actually talks about Net-Current-Asset Issues (under Enterprising Investor: A Summary of the Graham-Newman Methods) as: "The idea here was to acquire as many issues as possible at a cost for each of less than their book value in terms of net-current-assets alone...In most cases we carried a wide diversification here-at least 100 different issues." There's no reference or indication that other requirements (div. yield, earnings growth, etc.) were or are necessary. Also in a section called "Bargain Issues, or Net-Current-Asset Stocks", once again there is no discussion of these other requirements such as size, div. yield, earnings. "... It always seemed, and still seems, ridiculously simple to say that if one can acquire a diversified group of common stocks at a price less than the applicable net current assets alone- after deducting all prior claims, and counting as 'zero' the fixed and other assets- the results should be quite satisfactory. They were so, in our experience, for more than 30 years..." There's a chart of some net-nets on the next page. They show companies in 1970 with dividends and positive earnings. Dr. Graham states about this chart and net-nets (paraphrase): "There were 50 or so net-nets at this time -1970-and if we eliminated those that had reported net losses, we would still be left with enough issues to make up a diversified list." (But even with this statement, it is still not clear to me that Dr. Graham is actually recommending that companies with losses be excluded or that he excludes them from his portfolios, or that there are other criteria for inclusion/exclusion.) If Dr. Graham actually said to buy net-nets and that they also had to meet several other criteria, it is very oblique to me. (This would be based on my '73-76 ref. materials.) I'm still assuming that buying a diversified package of net-nets is all that is necessary and sufficient to play this game. Perhaps though, I am playing a 1976 game in 1998. That might not be such a good idea -g-. Paul