A few months ago I bought The Intelligent Investor by Benjamin Graham. It was one of my first investment books, and I feel like it has taught me a lot. For those that are familiar with both, The Intelligent Investor and Security Analysis… what is the difference between the two? I’m under the impression that they are very similar. So I was wondering if reading Security Analysis would give me additional insight on value investing? I’m also curious to know if the same financial screening process (P/E multiples, etc.) is as relevant today, as it was in the mid 60s when the book was written? And for those that are in any invesment analyst role at their job, do you utilize any of these techniques?
Security Analysis is much more detailed than Intelligent Investor. SA is used by some top level MBA programs to teach value investing to students. It is more technical and longer. Valuation still works today, many of the most successful investors employ a value investing strategy and almost all of them find some way or another to value an investment. By this point you should be realizing that value is relative and can be perceived differently by different investors, you can only hope that your analysis is seen by the markets in time and the intrinsic value you found is realized.
> > …I was wondering if reading Security Analysis would give > me additional insight on value investing? > > I’m also curious to know if the same financial > screening process (P/E multiples, etc.) is as > relevant today, as it was in the mid 60s when the > book was written? And for those that are in any > invesment analyst role at their job, do you > utilize any of these techniques? Additional insight question: Yes. “Intelligent Investor” is more generalized ideas: You should be attempting to buy securities at a discount to what you think they are worth. You attempt to take advantage from temporary price discrepancies (one-time events, terrible market crashes, horrible publicity, generally neglected industry, etc) instead of being swayed by them. “Security Analysis” is more a recipe book showing examples of a few of the ways that an informed and diligent investor might attempt to follow the teachings of Graham. It is far more detailed and focused on the actual nuts and bolts of valuation techniques. Many of the examples are outdated, but still excellent to learn from. I am now [thankfully] in an analyst role at a value-oriented buy side firm, and we do indeed use these techniques. It’s not as dramatic as some of the examples that Graham used to cite, but these fundamental principals of investing still work. Buying net-nets (companies trading for less than 2/3rd of their cash in the bank, after all liabilities are subtracted) or screening for companies making new 52 week lows are generally responsible for some of the ideas we begin research on. As far as the metrics (p/e, p/b, etc), yes, they’re all usually important, but no one metric is a golden ticket. Also, plenty of them get really messed up if there are special events or weird accounting, and then need adjustment. For example, a company has a big write-down one year, reports $0.04 EPS and thus trades at 1009x TTM earnings. In this case, the p/e says “DO NOT BUY”, but you might look at P/B or other metrics and conclude that (compared to normalized earnings) this is an excellent entry point. Bottom line: If you like value investing - or analysis in general - go read your Ben Graham, if only as a nod to the roots of the profession.