The Intelligent Investor_ The Definitive Book on Value Investing - Benjamin Graham [232]
1. Except, perhaps, in dollar-cost averaging plans begun at a reasonable price level.
2. But according to Robert M. Ross, authority on the Dow theory, the last two buy signals, shown in December 1966 and December 1970, were well below the preceding selling points.
3. The top three ratings for bonds and preferred stocks are Aaa, Aa, and A, used by Moody’s, and AAA, AA, A by Standard & Poor’s. There are others, going down to D.
4. This idea has already had some adoptions in Europe—e.g., by the state-owned Italian electric-energy concern on its “guaranteed floating rate loan notes,” due 1980. In June 1971 it advertised in New York that the annual rate of interest paid thereon for the next six months would be 8 1/8%.
One such flexible arrangement was incorporated in The Toronto-Dominion Bank’s “7%–8% debentures,” due 1991, offered in June 1971. The bonds pay 7% to July 1976 and 8% thereafter, but the holder has the option to receive his principal in July 1976.
Chapter 9. Investing in Investment Funds
1. The sales charge is universally stated as a percentage of the selling price, which includes the charge, making it appear lower than if applied to net asset value. We consider this a sales gimmick unworthy of this respectable industry.
2. The Money Managers, by G. E. Kaplan and C. Welles, Random House, 1969.
3. See definition of “letter stock” on p. 579.
4. Title of a book first published in 1852. The volume described the “South Sea Bubble,” the tulip mania, and other speculative binges of the past. It was reprinted by Bernard M. Baruch, perhaps the only continuously successful speculator of recent times, in 1932. That was locking the stable door after the horse was stolen. Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds (Metro Books, New York, 2002) was first published in 1841. Neither a light read nor always strictly accurate, it is an extensive look at how large numbers of people often believe very silly things—for instance, that iron can be transmuted into gold, that demons most often show up on Friday evenings, and that it is possible to get rich quick in the stock market. For a more factual account, consult Edward Chancellor’s Devil Take the Hindmost (Farrar, Straus & Giroux, New York, 1999); for a lighter take, try Robert Menschel’s Markets, Mobs, and Mayhem: A Modern Look at the Madness of Crowds (John Wiley & Sons, New York, 2002).
Chapter 10. The Investor and His Advisers
1. The examinations are given by the Institute of Chartered Financial Analysts, which is an arm of the Financial Analysts Federation. The latter now embraces constituent societies with over 50,000 members.
2. The NYSE had imposed some drastic rules of valuation (known as “haircuts”) designed to minimize this danger, but apparently they did not help sufficiently.
3. New offerings may now be sold only by means of a prospectus prepared under the rules of the Securities and Exchange Commission. This document must disclose all the pertinent facts about the issue and issuer, and it is fully adequate to inform the as to the exact nature of the security offered him. But the very copiousness of the data required usually makes the prospectus of prohibitive length. It is generally agreed that only a small percentage of buying new issues read the prospectus with thoroughness. Thus they are still acting mainly not on their own judgment but on that of the house selling them the security or on the recommendation of the individual salesman or account executive.
Chapter 11. Security Analysis for the Lay Investor:
General Approach
1. Our textbook, by Benjamin Graham, David L. Dodd, Sidney Cottle, and Charles Tatham (McGraw-Hill, 4th ed., 1962), retains the title originally chosen in 1934, but it covers much of the scope of financial analysis.
2. With Charles McGolrick, Harper & Row, 1964, reissued by HarperBusiness, 1998.
3. These figures are from Salomon Bros., a large New York bond house.
4. At least not by the great body of security analysts and investors. Exceptional analysts, who can tell in advance what companies