The Intelligent Investor_ The Definitive Book on Value Investing - Benjamin Graham [155]
We hesitate to prescribe our own diet for any large number of intelligent investors. Obviously, the professional techniques we have followed are not suitable for the defensive investor, who by definition is an amateur. As for the aggressive investor, perhaps only a small minority of them would have the type of temperament needed to limit themselves so severely to only a relatively small part of the world of securities. Most active-minded practitioners would prefer to venture into wider channels. Their natural hunting grounds would be the entire field of securities that they felt (a) were certainly not overvalued by conservative measures, and (b) appeared decidedly more attractive—because of their prospects or past record, or both—than the average common stock. In such choices they would do well to apply various tests of quality and price-reasonableness along the lines we have proposed for the defensive investor. But they should be less inflexible, permitting a considerable plus in one factor to offset a small black mark in another. For example, he might not rule out a company which had shown a deficit in a year such as 1970, if large average earnings and other important attributes made the stock look cheap. The enterprising investor may confine his choice to industries and companies about which he holds an optimistic view, but we counsel strongly against paying a high price for a stock (in relation to earnings and assets) because of such enthusiasm. If he followed our philosophy in this field he would more likely be the buyer of important cyclical enterprises—such as steel shares perhaps—when the current situation is unfavorable, the near-term prospects are poor, and the low price fully reflects the current pessimism.*
Secondary Companies
Next in order for examination and possible selection would come secondary companies that are making a good showing, have a satisfactory past record, but appear to hold no charm for the public. These would be enterprises on the order of ELTRA and Emhart at their 1970 closing prices. (See Chapter 13 above.) There are various ways of going about locating such companies. We should like to try a novel approach here and give a reasonably detailed exposition of one such exercise in stock selection. Ours is a double purpose. Many of our readers may find a substantial practical value in the method we shall follow, or it may suggest comparable methods to try out. Beyond that what we shall do may help them to come to grips with the real world of common stocks, and introduce them to one of the most fascinating and valuable little volumes in existence. It is Standard & Poor’s Stock Guide, published monthly, and made available to the general public under annual subscription. In addition many brokerage firms distribute the Guide to their clients (on request.)
The great bulk of the Guide is given over to about 230 pages of condensed statistical information on the stocks of more than 4,500 companies. These include all the issues listed on the various exchanges, say 3,000, plus some 1,500 unlisted issues. Most of the items needed for a first and even a second look at a given company appear in this compendium. (From our viewpoint the important missing datum is the net-asset-value, or book value, per share, which can be found in the larger Standard & Poor’s volumes and elsewhere.)
The investor who likes to play around with corporate figures will find himself in clover with the Stock Guide. He can open to any page and see before his eyes a condensed panorama of the splendors and miseries of the stock market, with all-time high and low prices going as far back as 1936, when available. He will find companies that have multiplied their price 2,000 times from the minuscule low to the majestic high. (For prestigious IBM the growth was “only” 333 times in that period.) He will find (not so exceptionally) a company whose