1.
THE BEST OF
GRAHAM & DODD’S
Security
Analysis
PART I: SURVEY
AND APPROACH

2.
Chapter 1
THE SCOPE AND LIMITS OF
SECURITY ANALYSIS. THE
CONCEPT OF INTRINSIC
VALUE

3.
“Analysis connotes the careful study of available facts with
the attempt to draw conclusions therefrom based on
established principles and sound logic. It is part of the
scientific method. But in applying analysis to the field of
securities we encounter the serious obstacle that
investment is by nature not an exact science.”
— p.61 —

4.
We must recognize…that intrinsic value is an elusive
concept. In general terms it is understood to be that value
which is justified by the facts, e.g., the assets, earnings,
dividends, definite prospects, as distinct, let us say, from
market quotations established by artificial manipulation or
distorted by psychological excesses. But it is a great
mistake to imagine that intrinsic value is as definite and as
determinable as is the market price.”
— p.64 —

5.
“The essential point is that security analysis does not seek
to determine exactly what is the intrinsic value of a given
security. It needs only to establish either that the value
is adequate... or else that the value is considerably higher or
considerably lower than the market price. For such
purposes an indefinite and approximate measure of the
intrinsic value may be sufficient. To use a homely simile, it
is quite possible to decide by inspection that a woman is
old enough to vote without knowing her age or that a
man is heavier than he should be without knowing his
exact weight.”
— p.66 —

6.
“Undervaluations caused by neglect or prejudice may
persist for an inconveniently long time, and the same
applies to inflated prices caused by overenthusiasm or
artificial stimulants.”
— p.70 —

7.
“In other words, the market is not a weighing machine, on
which the value of each issue is recorded by an exact and
impersonal mechanism, in accordance with its specific
qualities. Rather should we say that the market is a voting
machine, whereon countless individuals register choices
which are the product partly of reason and partly of
emotion.”
— p.70 —

8.
“It is only where chance plays a subordinate role that the
analyst can properly speak in an authoritative voice and
accept responsibility for the results of his judgments.”
— p.73 —

9.
Chapter 2
FUNDAMENTAL ELEMENTS
IN THE PROBLEM OF
ANALYSIS. QUANTITATIVE
AND QUALITATIVE
FACTORS

10.
“Nearly every issue might conceivably be cheap in one
price range and dear in another.”
— p.80 —

11.
“The analyst must pay respectful attention to the
judgment of the market place and to the enterprises
which it strongly favors, but he must retain an
independent and critical viewpoint. Nor should he
hesitate to condemn the popular and espouse the
unpopular when reasons sufficiently weighty and
convincing are at hand.”
— p.81 —

12.
“It is natural to assume that industries which have fared
worse than the average are 'unfavorably situated' and
therefore to be avoided. The converse would be assumed,
of course, for those with superior records. But this
conclusion may often prove quite erroneous. Abnormally
good or abnormally bad conditions do not last forever.
This is true not only of general business but of particular
industries as well. Corrective forces are often set in motion
which tend to restore profits where they have disappeared,
or to reduce them where they are excessive in relation to
capital.”
— p.83 —

13.
“Objective tests of managerial ability are few and far
from scientific. In most cases the investor must rely upon a
reputation which may or may not be deserved. The most
convincing proof of capable management lies in a
superior comparative record over a period of time.”
— p.84 —

14.
“But while a trend shown in the past is a fact, a 'future
trend' is only an assumption.”
— p.84 —

15.
“Analysis is concerned primarily with values which are
supported by the facts and not with those which depend
largely upon expectations. In this respect the analyst's
approach is diametrically opposed to that of the
speculator, meaning thereby one whose success turns
upon his ability to forecast or to guess future
developments. Needless to say, the analyst must take
possible future changes into account, but his primary aim
is not so much to profit from them as to guard against them.
Broadly speaking, he views the business future as a hazard
which his conclusions must encounter rather than as the
source of his vindication.”
— p.86 —

16.
Chapter 3
SOURCES OF
INFORMATION

17.
“Although it is true that the registration statements are
undoubtedly too bulky to be read by the typical investor,
and although it is doubtful if he is even careful to digest
the material in the abbreviated prospectus (which still may
cover more than 100 pages), there is no doubt that this
material is proving of the greatest value to the analyst and
through him to the investing public.”
— p.96 —

18.
“It must never be forgotten that a stockholder is
an owner of the business and an employer of its officers. He
is entitled not only to ask legitimate questions but also to
have them answered, unless there is some persuasive
reason to the contrary.”
— p.98 —

19.
Chapter 4
DISTINCTIONS BETWEEN
INVESTMENT AND
SPECULATION

20.
“An investment operation is one which, upon thorough
analysis, promises safety of principal and a satisfactory
return. Operations not meeting these requirements are
speculative.”
— p.106 —

21.
“An investment operation is one that can be justified
on both qualitative and quantitative grounds.”
— p.107 —

22.
Chapter 5
CLASSIFICATION OF
SECURITIES

23.
“From the foregoing discussion [Graham's case for a new
classification of securities] the real character and purpose
of our classification should now be more evident. Its basis
is not the title of the issue, but the practical significance of
its specific terms and status to the owner. Nor is the
primary emphasis placed upon what the owner is legally
entitled to demand, but upon what he is likely to get, or is
justified in expecting, under conditions which appear to
be probable at the time of purchase or analysis.”
— p.119 —

24.
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