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every day to do “something foolish, something creative and something generous.”
“Those who do not remember the past are condemned to repeat it.”
art of successful investment lies first in the choice of those industries that are most likely to grow in the future and then in identifying the most promising companies in these industries.
Obvious prospects for physical growth in a business do not translate into obvious profits for investors.
The experts do not have dependable ways of selecting and concentrating on the most promising companies in the most promising industries.
The intelligent investor realizes that stocks become more risky, not less, as their prices rise—and less risky, not more, as their prices fall. The intelligent investor dreads a bull market, since it makes stocks more costly to buy. And conversely (so long as you keep enough cash on hand to meet your spending needs), you should welcome a bear market, since it puts stocks back on sale.
“An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”
Never mingle your speculative and investment operations in the same account, nor in any part of your thinking.
To enjoy a reasonable chance for continued better than average results, the investor must follow policies which are (1) inherently sound and promising, and (2) not popular on Wall Street.
you must thoroughly analyze a company, and the soundness of its underlying businesses, before you buy its stock;
you must deliberately protect yourself against serious losses;
you must aspire to “adequate,” not extraordina...
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Graham urges you to invest only if you would be comfortable owning a stock even if you had no way of knowing its daily share price.
Never mingle the money in your speculative account with what’s in your investment accounts; never allow your speculative thinking to spill over into your investing activities; and never put more than 10% of your assets into your mad money account,
Americans are getting stronger. Twenty years ago, it took two people to carry ten dollars’ worth of groceries. Today, a five-year-old can do it. —Henny Youngman
it’s so important to measure your investing success not just by what you make, but by how much you keep after inflation.
ascetic
When stocks are priced reasonably enough to give you future growth, then you should own them, regardless of the losses they may have cost you in the recent past.
That’s all the more true when bond yields are low, reducing the future returns on income-producing investments.
As we have seen in Chapter 3, stocks are (as of early 2003) only mildly overpriced by historical standards. Meanwhile, at recent prices, bonds offer such low yields that an investor who buys them for their supposed safety is like a smoker who thinks he can protect himself against lung cancer by smoking low-tar cigarettes. No matter how defensive an investor you are—in Graham’s sense of low maintenance, or in the ...
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corollary
“Finding the promising company is only the first step. The next step is doing the research.”
stock isn’t even more overpriced than the coffee.
“Well, you can do it,” Landis chirped. “All you really need to do is focus on the things that you know, and stay close to an industry, and talk to people who work in it every day.”2
no one but you, must investigate (before you hand over your money) whether an adviser is trustworthy and charges reasonable fees.
renunciation
Let’s say you can spare $500 a month. By owning and dollar-cost averaging into just three index funds—$300 into one that holds the total U.S. stock market, $100 into one that holds foreign stocks, and $100 into one that holds U.S. bonds—
No matter how many other people want to buy a stock, you should buy only if the stock is a cheap way to own a desirable business.
It requires a great deal of boldness and a great deal of caution to make a great fortune; and when you have got it, it requires ten times as much wit to keep it. —Nathan Mayer Rothschild
In an ideal world, the intelligent investor would hold stocks only when they are cheap and sell them when they become overpriced, then duck into the bunker of bonds and cash until stocks again become cheap enough to buy.
A great company is not a great investment if you pay too much for the stock.
The more a stock has gone up, the more it seems likely to keep going up. But that instinctive belief is flatly contradicted by a fundamental law of financial physics: The bigger they get, the slower they grow. A $1-billion company can double its sales fairly easily; but where can a $50-billion company turn to find another $50 billion in business?
Growth stocks are worth buying when their prices are reasonable, but when their price/earnings ratios go much a...
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(Online, try http://quote. morningstar.com/highlow.html?msection=HighLow.)
To see whether a stock is selling for less than the value of net working capital (what Graham’s followers call “net nets”), download or request the most recent quarterly or annual report from the company’s website or from the EDGAR database at www.sec.gov.
which is why you should buy them only if you can find a couple dozen at a time and hold them patiently. But on the very rare occasions when Mr. Market generates that many true bargains, you’re all but certain to make money.
Buy every month, automatically, and whenever else you can spare some money. The single best choice for this lifelong holding is a total stock-market index fund. Sell only when you need the cash
After all, the whole point of investing is not to earn more money than average, but to earn enough money to meet your own needs.
the company’s “general long-term prospects” the quality of its management its financial strength and capital structure its dividend record and its current dividend rate.
help you answer two overriding questions. What makes this company grow? Where do (and where will) its profits come from? Among the problems to watch for:
The company is a “serial acquirer.” An average of more than two or three acquisitions a year is a sign of potential trouble.
borrowing debt or selling stock to raise boatloads of Other People’s Money.
relying on one customer (or a handful) for most of its revenues.
The company has a wide “moat,” or competitive advantage.
The company is a marathoner, not a sprinter.
a company must spend some money to develop new business. While research and development spending is not a source of growth today, it may well be tomorrow—
A company’s executives should say what they will do, then do what they said. Read the past annual reports to see what forecasts the managers made and if they fulfilled them or fell short. Managers should forthrightly admit their failures and take responsibility for them, rather than blaming all-purpose scapegoats like “the economy,” “uncertainty,” or “weak demand.”
Otherwise, this kind of obscenely obese payday suggests that the firm is run by the managers, for the managers.
Any established company that reprices options—as dozens of high-tech firms have—is a disgrace. And any investor who buys stock in such a company is a sheep begging to be sheared.
(For a model of how a company can communicate candidly and fairly with its shareholders, go to the EDGAR database at www.sec.gov and view the 8-K filings made by Expeditors International of Washington, which periodically posts its superb question-and-answer dialogues with shareholders there.)
