Security Analysis - Principles and Technique - Benjamin Graham

BENJAMIN GRAHAM Investment Fund Manager; Lecturer in Finance, Columbia University

DAVID L. DODD Associate Professor of Finance, Columbia University

Foreword by Warren E. Buffett

This book is intended for all those who have a serious interest in security values. It is not addressed to the complete novice, however, for it presupposes some acquaintance with the terminology and the simpler concepts of finance. The scope of the work is wider than its title may suggest. It deals not only with methods of analyzing individual issues, but also with the establishment of general principles of selection and protection of security holdings. Hence much emphasis has been laid upon distinguishing the investment from the speculative approach, upon setting up sound and workable tests of safety, and  upon an understanding of the rights and true interests of investors in senior securities and owners of common stocks.

In dividing our space between various topics the primary but not the exclusive criterion has been that of relative importance. Some matters of vital significance, e.g., the determination of the future prospects of an enterprise, have received little space, because little of definite value can be said on the subject. Others are glossed over because they are so well understood. Conversely we have  stressed the technique of discovering bargain issues beyond its relative importance in the entire field of investment, because in this activity the talents peculiar to the securities analyst find perhaps their most fruitful expression. In similar fashion we have accorded quite detailed treatment to the characteristics of privileged senior issues (convertibles, etc.), because the attention given to these instruments in standard textbooks is now quite inadequate in view of their extensive development in recent years.

Our governing aim, however, has been to make this a critical rather than a descriptive work. We are concerned chiefly with concepts, methods, standards, principles, and, above all, with logical reasoning. We have stressed theory not for itself alone but for its value in practice. We have tried to avoid prescribing standards which are too stringent to follow, or technical methods which are more trouble than they are worth.

The chief problem of this work has been one of perspective—to blend the divergent experiences of the recent and the remoter past into a synthesis which will stand the test of the ever enigmatic future.  While we were writing, we had to combat a widespread conviction that financial debacle was to be the permanent order; as we publish, we already see resurgent the age-old frailty of the investor—that his money burns a hole in his pocket. But it is the conservative investor who will need most of all to be reminded constantly of the lessons of 1931–1933 and of previous collapses. For what we shall call fixed-value investments can be soundly chosen only if they are approached—in the Spinozan phrase—“from the viewpoint of calamity.” In dealing with other types of security commitments, we have striven throughout to guard the student against overemphasis upon the superficial and the temporary. Twenty years of varied experience in Wall Street have taught the senior author that this overemphasis is at once the delusion and the nemesis of the world of finance.

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