Benjamin Graham is the godfather of value investing. This text is absolutely required reading, not just for value investors but for investors of all strategies.
You will smile and laugh at Graham’s protagonist, “Mr. Market” and how he uses this allegory to show us what we are doing right and wrong. Almost 64 years old, Warren Buffet has dubbed it the most important book on investing ever written! Jason Zweig, offers a nice analysis and commentary following each chapter explaining how to put in practice what Graham says as well as its relevance today.
Much of value investing involves finding the discounted gems using rigorous fundamental analysis. Believe it or not, many companies find creative ways to make their books look much better than you would expect. In fact accountants can make a quarterly shareholders report look better to many investors in order to meet Wall Street expectations.
The author tracks the major account frauds of the last century in a humors way to give the reader examples. Accounting, which is often difficult to understand, is presented in an easy to read format without losing the core teachings.
Where Benjamin Graham leaves off, Philip Fisher takes over. Fisher uses the same principles of Graham when assessing the fundamentals of a stock but moves from pure value to growth. This is the present thinking of a value investor like Warren Buffet. The idea is that an investor should be willing to pay up for growth, not just looking at discounts. If they did their research correctly, they would be paying a discounted price for what will turn out to be a home run value stock.
We keep saying that fundamental analysis is the foundation of value investing. This is the bible of value investing. At more than 700 pages, Security Analysis is absolute guide on how to asses a security and make an informed and logical position on it.
The massive text has 10 chapters deleted since the original publication 57 years but contains all of the original chapters in PDF format in a CD at the back of the book. Some of the information in this book is outdated and cannot be taken at face value but should make for great food for thought.
Don’t let the almost rude title dissuade you. The premise is simple; buy stocks in companies that you know will grow in the future and buy them at a discount. Ponzio believes that brokerages and mutual funds along with talking heads like those at CNBC are constantly feeding us information to continually cause us to trade. By trading more, they pick up their fees and make more money regardless of what happens to us.
The book definitely has a long term outlook but will not argue with you when it comes time to sell. What separates Ponzio from other value investors is his look at cash flow and how it is so much more important than P/E ratios.