Tuesday, November 29, 2011

Review of The Rediscovered Benjamin Graham: Selected Writings of the Wall Street Legend by Janet Lowe

"A thing I would like to warn you against is spending a lot of time on over-detailed analyses... because you get yourself into the feeling that, since you have studied this thing so long and gathered together so many figures, your estimates are bound to be highly accurate. But they won't be." - Ben Graham
Reading The Rediscovered Benjamin Graham: Selected Writings of the Wall Street Legend, it occurs to me that investing truth lies near the intersection of Graham-style value and Prechter's theory of social mood. The two of them have much more in common than I realized. Graham actually said that "value standards don't determine prices; prices determine value standards"! He also wrote that,
"[I]nvestors have been willing to pay so much for so-called quality, and so much for so-called future prospects, on the average, that they have themselves introduced serious speculative elements into common stock valuations. These elements are bound to create fluctuations in their own attitude, because quality and prospects are psychological factors."
Ben Graham died in 1976. If he was alive, he would be 117 years old today. I wonder what he would have thought if he could have seen Conquer the Crash and the 2000 stock bubble. Something else interesting that he mentioned was that "even in years of considerable market and business changes the price of investment issues did not go through very wide fluctuations." By investment issues he means non-speculative stock purchases (e.g. net-nets) with a margin of safety.

That reminds me of Conrad and our other micro cap value trades. The share prices will be unchanged most days. Given the gyrations in almost all stocks, we now live in a world with few "investment issues!" And, by the way, an important Graham valuation indicator for the market was the relative abundance of net net opportunities.

Graham had an observation about inflation protection that is quite relevant today:
"It is impossible for any really large sums of money-say billions of dollars-to be invested in such tangibles [gold or commodities], other than real property, without creating a huge advance in the price level, thus creating a typical speculative cycle ending in the inevitable crash."
Of course, that is precisely the situation that the inflationists have created today, with silver trading for multiples of its cost of production.

I give this a 4/5, including a point for brevity and good editing.

Reviews of other Graham books:
Security Analysis: Sixth Edition, Foreword by Warren Buffett 4/5 (originally, now I think it should be 5)
Benjamin Graham, Building a Profession: The Early Writings of the Father of Security Analysis 3/5

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