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A multifaceted approach to value investing with stock valuation based on intrinsic value estimated from cash returns, appraised value of assets, and other facets of value.



Comparison of Security Analysis Editions   |   Flexible Concept


The following summary tables of contents offer a brief comparison of the first "classic" edition of Security Analysis by Benjamin Graham and David L. Dodd and its forth "modern" edition. The book in its fifth edition (1988) no longer includes only Graham and Dodd as authors. These excerpts and quotes are considered to be "fair use" as interpreted by The Chicago Manual of Style: The Essential Guide for Writers, Editors, and Publisher, 14th edition, 1993. Chicago: The University of Chicago Press.

Security Analysis, First Edition, 1934
PART 1: Survey and Approach
PART II: Fixed-Value Investments
PART III: Senior Securities with Speculative Features
PART IV: Theory of Common-Stock Investment. The Dividend Factor
PART V: Analysis of the Income Account. The Earnings Factor in Common-Stock Valuation
PART VI: Balance-Sheet Analysis. Implications of Asset Values
PART VII: Additional Aspects of Security Analysis, Discrepancies between Price and Value
(one major entry for dividend(s); no entries for growth)

The 1st edition, Part IV, page 325, lists the natural classification of the elements entering into the valuation of a common stock: 1. The dividend rate and record, 2. Income-account factors (earning power), and 3.Balance-sheet factors (asset value). In Part V, the "quality coefficient" on page 351 or earnings multiplier on page 451 is the price-earnings ratio fully presented in Chapter XXXIX. The point of departure is a P/E ratio of 10 and the maximum P/E is 16.

Security Analysis: Principles and Techniques, Fourth Edition, 1962
PART ONE. Survey and Approach
PART TWO. Analysis of Financial Statements
PART THREE. Fixed-Income Securities
PART FOUR. The Valuation of Common Stocks
PART FIVE. Senior Securities with Speculative Features
PART SIX. Other Aspects of Security Analysis

(seven major entries for dividend or dividends; ten major entries for growth)

The 4th edition, Part Four, page 443, listed the Factors in the Valuation of Common Stocks: 1. The expected future earnings, 2. The expected future dividends, 3. The capitalization rate--or multipliers--of the dividends and earnings, and 4. The asset values. Before discussing asset values in Part Four, Chapter 41, the 4th edition included Chapter 39 "Newer Methods for Valuing Growth Stocks."

The 4th edition, Part One, pages 55-56, discusses Growth Stocks in Relation to Investment and Speculation. In this edition we are haunted, as it were, by the spectre of "growth stocks"--by the question how best to deal with them in the context of our basic principles. ... Proposition 4. Our concept of "investment value" requires that the uncertainty as to future growth be reflected in relatively modest projections and capitalization rates. The investment value, so arrived at, must necessarily fall most of the time below the market prices of such issues, which are based on no calculations or on what we should call "speculative calculations."

Flexible Concept of Intrinsic Value

Graham & Dodd (Security Analysis, 1934, pages 19-20) write: "Flexibility of the Concept of Intrinsic Value. -- This should indicate how flexible is the concept of intrinsic value as applied to security analysis. Our notion of intrinsic value may be more or less distinct, depending on the particular case. The degree of indistinctness may be expressed by a very hypothetical "range of approximate value," which would grow wider as the uncertainty of the picture increased ... . It would follow that even a very indistinct idea of the intrinsic value may still justify a conclusion if the current price falls far outside either the maximum or minimum appraisal."

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