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7 1949 edition, p. 224.

8 1949 edition, p. 233.

9 Eugene F. Fama and Kenneth R. French, “Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay?” Journal of Financial Economics, vol. 60, no. 1, April, 2001, pp. 3–43, especially Table 1; see also Elroy Dimson, Paul Marsh, and Mike Staunton, Triumph of the Optimists (Princeton Univ. Press, Princeton, 2002), pp. 158–161. Interestingly, the total dollar amount of dividends paid by U.S. stocks has risen since the late 1970s, even after inflation—but the number of stocks that pay a dividend has shrunk by nearly two-thirds. See Harry DeAngelo, Linda DeAngelo, and Douglas J. Skinner, “Are Dividends Disappearing? Dividend Concentration and the Consolidation of Earnings,” available at: http://papers.ssrn.com.

10 Perhaps Benjamin Franklin, who is said to have carried his coins around in an asbestos purse so that money wouldn’t burn a hole in his pocket, could have avoided this problem if he had been a CEO.

11 A study by BusinessWeek found that from 1995 through 2001, 61% out of more than 300 large mergers ended up destroying wealth for the shareholders of the acquiring company—a condition known as “the winner’s curse” or “buyer’s remorse.” And acquirers using stock rather than cash to pay for the deal underperformed rival companies by 8%. (David Henry, “Mergers: Why Most Big Deals Don’t Pay Off,” BusinessWeek, October 14, 2002, pp. 60–70.) A similar academic study found that acquisitions of private companies and subsidiaries of public companies lead to positive stock returns, but that acquisitions of entire public companies generate losses for the winning bidder’s shareholders. (Kathleen Fuller, Jeffry Netter, and Mike Stegemoller, “What Do Returns to Acquiring Firms Tell Us?” The Journal of Finance, vol. 57, no. 4, August, 2002, pp. 1763–1793.)

12 With interest rates near record lows, such a mountain of cash produces lousy returns if it just sits around. As Graham asserts, “So long as this surplus cash remains with the company, the outside stockholder gets little benefit from it” (1949 edition, p. 232). Indeed, by year-end 2002, Microsoft’s cash balance had swollen to $43.4 billion—clear proof that the company could find no good use for the cash its businesses were generating. As Graham would say, Microsoft’s operations were efficient, but its finance no longer was. In a step toward redressing this problem, Microsoft declared in early 2003 that it would begin paying a regular quarterly dividend.

13 Robert D. Arnott and Clifford S. Asness, “Surprise! Higher Dividends = Higher Earnings Growth,” Financial Analysts Journal, January/February, 2003, pp. 70–87.

14 Doron Nissim and Amir Ziv, “Dividend Changes and Future Profitability,” The Journal of Finance, vol. 56, no. 6, December, 2001, pp. 2111–2133. Even researchers who disagree with the Arnott-Asness and Nissim-Ziv findings on future earnings agree that dividend increases lead to higher future stock returns; see Shlomo Benartzi, Roni Michaely, and Richard Thaler, “Do Changes in Dividends Signal the Future or the Past?” The Journal of Finance, vol. 52, no. 3, July, 1997, pp. 1007–1034.

15 The tax reforms proposed by President George W. Bush in early 2003 would change the taxability of dividends, but the fate of this legislation was not yet clear by press time.

16 Historically, companies took a common-sense approach toward share repurchases, reducing them when stock prices were high and stepping them up when prices were low. After the stock market crash of October 19, 1987, for example, 400 companies announced new buybacks over the next 12 days alone—while only 107 firms had announced buyback programs in the earlier part of the year, when stock prices had been much higher. See Murali Jagannathan, Clifford P. Stephens, and Michael S. Weisbach, “Financial Flexibility and the Choice Between Dividends and Stock Repurchases,” Journal of Financial Economics, vol. 57, no. 3, September, 2000, p. 362.

17 The stock options granted by a company to its executives and employees