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A Book of Practical Counsel

Revised Edition

Benjamin Graham

Updated with New Commentary by Jason Zweig

To E.M.G.

Through chances various, through all

vicissitudes, we make our way….

Aeneid

Contents

Epigraph

Preface to the Fourth Edition, by Warren E. Buffett

A Note About Benjamin Graham, by Jason Zweig

Introduction: What This Book Expects to Accomplish

Commentary on the Introduction

1. Investment versus Speculation: Results to Be Expected by the Intelligent Investor

Commentary on Chapter 1

2. The Investor and Inflation

Commentary on Chapter 2

3. A Century of Stock-Market History: The Level of Stock Prices in Early 1972

Commentary on Chapter 3

4. General Portfolio Policy: The Defensive Investor

Commentary on Chapter 4

5. The Defensive Investor and Common Stocks

Commentary on Chapter 5

6. Portfolio Policy for the Enterprising Investor: Negative Approach

Commentary on Chapter 6

7. Portfolio Policy for the Enterprising Investor: The Positive Side

Commentary on Chapter 7

8. The Investor and Market Fluctuations

Commentary on Chapter 8

9. Investing in Investment Funds

Commentary on Chapter 9

10. The Investor and His Advisers

Commentary on Chapter 10

11. Security Analysis for the Lay Investor: General Approach

Commentary on Chapter 11

12. Things to Consider About Per-Share Earnings

Commentary on Chapter 12

13. A Comparison of Four Listed Companies

Commentary on Chapter 13

14. Stock Selection for the Defensive Investor

Commentary on Chapter 14

15. Stock Selection for the Enterprising Investor

Commentary on Chapter 15

16. Convertible Issues and Warrants

Commentary on Chapter 16

17. Four Extremely Instructive Case Histories

Commentary on Chapter 17

18. A Comparison of Eight Pairs of Companies

Commentary on Chapter 18

19. Shareholders and Managements: Dividend Policy

Commentary on Chapter 19

20. “Margin of Safety” as the Central Concept of Investment

Commentary on Chapter 20

Postscript

Commentary on Postscript

Appendixes

1. The Superinvestors of Graham-and-Doddsville

2. Important Rules Concerning Taxability of Investment Income and Security Transactions (in 1972)

3. The Basics of Investment Taxation (Updated as of 2003)

4. The New Speculation in Common Stocks

5. A Case History: Aetna Maintenance Co.

6. Tax Accounting for NVF’s Acquisition of Sharon Steel Shares

7. Technological Companies as Investments

Endnotes

Acknowledgments from Jason Zweig

Index

About the Authors

Credits

Copyright

About the Publisher

The text reproduced here is the Fourth Revised Edition, updated by Graham in 1971-1972 and initially published in 1973. The numbered chapter notes are original to Graham—bolded text in these notes is by Jason Zweig.

Jason Zweig’s new notes within Graham’s chapters are designated by an asterisk or a cross.

Preface to the Fourth Edition,

by Warren E. Buffett

I read the first edition of this book early in 1950, when I was nineteen. I thought then that it was by far the best book about investing ever written. I still think it is.

To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. This book precisely and clearly prescribes the proper framework. You must supply the emotional discipline.

If you follow the behavioral and business principles that Graham advocates—and if you pay special attention to the invaluable advice in Chapters 8 and 20—you will not get a poor result from your investments. (That represents more of an accomplishment than you might think.) Whether you achieve outstanding results will depend on the effort and intellect you apply to your investments, as well as on the amplitudes of stock-market folly that prevail during your investing career. The sillier the market’s behavior, the greater the opportunity for the business-like investor. Follow Graham and you will profit from