The Intelligent Investor_ The Definitive Book on Value Investing - Benjamin Graham [230]
7. Technological Companies as Investments
In the Standard & Poor’s services in mid-1971 there were listed about 200 companies with names beginning with Compu-, Data, Electro-, Scien-, Techno-. About half of these belonged to some part of the computer industry. All of them were traded in the market or had made applications to sell stock to the public.
A total of 46 such companies appeared in the S & P Stock Guide for September 1971. Of these, 26 were reporting deficits, only six were earning over $1 per share, and only five were paying dividends.
In the December 1968 Stock Guide there had appeared 45 companies with similar technological names. Tracing the sequel of this list, as shown in the September 1971 Guide, we find the following developments:
COMMENT: It is virtually certain that the many technological companies not included in the Guide in 1968 had a poorer subsequent record than those that were included; also that the 12 companies dropped from the list did worse than those that were retained. The harrowing results shown by these samples are no doubt reasonably indicative of the quality and price history of the entire group of “technology” issues. The phenomenal success of IBM and a few other companies was bound to produce a spate of public offerings of new issues in their fields, for which large losses were virtually guaranteed.
Endnotes
Introduction: What This Book Expects to Accomplish
1. “Letter stock” is stock not registered for sale with the Securities and Exchange Commission (SEC), and for which the buyer supplies a letter stating the purchase was for investment.
2. The foregoing are Moody’s figures for AAA bonds and industrial stocks.
Chapter 1. Investment versus Speculation:
Results to Be Expected by the Intelligent Investor
1. Benjamin Graham, David L. Dodd, Sidney Cottle, and Charles Tatham, McGraw-Hill, 4th. ed., 1962. A fascimile copy of the 1934 edition of Security Analysis was reissued in 1996 (McGraw-Hill).
2. This is quoted from by Lawrence Chamberlain, published in 1931.
3. In a survey made by the Federal Reserve Board.
4. 1965 edition, p. 8.
5. We assume here a top tax bracket for the typical investor of 40% applicable to dividends and 20% applicable to capital gains.
Chapter 2. The Investor and Inflation
1. This was written before President Nixon’s price-and-wage “freeze” in August 1971, followed by his “Phase 2” system of controls. These important developments would appear to confirm the views expressed above.
2. The rate earned on the Standard & Poor’s index of 425 industrial stocks was about 11½% on asset value—due in part to the inclusion of the large and highly profitable IBM, which is not one of the DJIA 30 issues.
3. A chart issued by American Telephone & Telegraph in 1971 indicates that the rates charged for residential telephone services were somewhat less in 1970 than in 1960.
4. Reported in the Wall Street Journal, October, 1970.
Chapter 3. A Century of Stock-Market History:
The Level of Stock Prices in Early 1972
1. Both Standard & Poor’s and Dow Jones have separate averages for public utilities and transportation (chiefly railroad) companies. Since 1965 the New York Stock Exchange has computed an index representing the movement of all its listed common shares.
2. Made by the Center for Research in Security Prices of the University of Chicago, under a grant from the Charles E. Merrill Foundation.
3. This was first written in early 1971 with the DJIA at 940. The contrary view held generally on Wall Street was exemplified in a detailed study which reached a median valuation of 1520 for the DJIA in 1975. This would correspond to a discounted value of, say, 1200 in mid-1971. In March 1972 the DJIA was again