The Intelligent Investor_ The Definitive Book on Value Investing - Benjamin Graham [233]
5. On p. 295 we set forth a formula relating multipliers to the rate of expected growth.
6. Part of the fireworks in the price of Chrysler was undoubtedly inspired by two two-for-one stock splits taking place in the single year 1963—an unprecedented phenomenon for a major company. In the early 1980s, under Lee Iacocca, Chrysler did a three-peat, coming back from the brink of bankruptcy to become one of the best-performing stocks in America. However, identifying managers who can lead great corporate comebacks is not as easy as it seems. When Al Dunlap took over Sunbeam Corp. in 1996 after restructuring Scott Paper Co. (and driving its stock price up 225% in 18 months), Wall Street hailed him as little short of the Second Coming. Dunlap turned out to be a sham who used improper accounting and false financial statements to mislead Sunbeam’s investors—including the revered money managers Michael Price and Michael Steinhardt, who had hired him. For a keen dissection of Dunlap’s career, see John A. Byrne, Chainsaw (HarperCollins, New York, 1999).
7. Note that we do not suggest that this formula gives the “true value” of a growth stock, but only that it approximates the results of the more elaborate calculations in vogue.
Chapter 12. Things to Consider About Per-Share Earnings
1. Our recommended method of dealing with the warrant dilution is discussed below. We prefer to consider the market value of the warrants as an addition to the current market price of the common stock as a whole.
Chapter 13. A Comparison of Four Listed Companies
1. In March 1972, Emery sold at 64 times its 1971 earnings!
Chapter 14. Stock Selection for the Defensive Investor
1. Because of numerous stock splits, etc., through the years, the actual average price of the DJIA list was about $53 per share in early 1972.
2. In 1960 only two of the 29 industrial companies failed to show current assets equal to twice current liabilities, and only two failed to have net current assets exceeding their debt. By December 1970 the number in each category had grown from two to twelve.
3. But note that their combined market action from December 1970 to early 1972 was poorer than that of the DJIA. This demonstrates once again that no system or formula will guarantee superior market results. Our requirements “guarantee” only that the portfolio-buyer is getting his money’s worth.
4. As a consequence we must exclude the majority of gas pipeline stocks, since these enterprises are heavily bonded. The justification for this setup is the underlying structure of purchase contracts which “guarantee” bond payments; but the considerations here may be too complicated for the needs of a defensive investor.
Chapter 15. Stock Selection for the Enterprising Investor
1. Mutual Funds and Other Institutional Investors: A New Perspective, I. Friend, M. Blume, and J. Crockett, McGraw-Hill, 1970. We should add that the 1966–1970 results of many of the funds we studied were somewhat better than those of the Standard & Poor’s 500-stock composite and considerably better than those of the DJIA.
2. Personal note: Many years before the stock-market pyrotechnics in that particular company the author was its “financial vice-president” at the princely salary of $3,000 per annum. It was then really in the fireworks business. In early 1929, Graham became a financial vice president of Unexcelled Manufacturing Co., the nation’s largest producer of fireworks. Unexcelled later became a diversified chemical company and no longer exists in independent form.
3. The Guide does not show multipliers above 99. Most such would be mathematical oddities, caused by earnings just above the zero point.
Chapter 16. Convertible Issues and Warrants
1. This point is well illustrated by an offering of two issues of Ford Motor Finance Co. made simultaneously in November 1971. One was a 20-year nonconvertible