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Security Analysis
Book

Security Analysis

Benjamin Graham and David Dodd
McGraw-Hill, 1996
First Edition: 1934

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Editorial Rating

8

Qualities

  • Innovative
  • Applicable

Recommendation

A book that has been in continuous print since its first edition in 1934 obviously has timeless relevance. In the intervening decades since their book’s initial publication, Benjamin Graham and David Dodd’s principles of value investing have made fortunes for countless investors. Warren Buffett calls this book his Bible. Much has changed on Wall Street since the 1930s, but the concept of investing in undervalued companies has not. In addition to its lucid explanation of investment basics, the book is a fascinating picture of a time when policy makers still were absorbing the lessons of the Great Depression: The Securities Act of 1933 had just changed the rules of financial disclosure, and most public companies were manufacturers, mines, railroads or utilities – a stark contrast to today’s blue-chip portfolio. getAbstract recommends this book to students of financial history and to serious investors who want to cut through modern Wall Street jargon.

Summary

What Is Security Analysis?

Security analysis is the process of deciding which securities are sound investments. True investments keep the principal safe and deliver an acceptable return. Any purchase that does not meet these criteria is speculation.

Security analysis has three functions:

  1. “Descriptive function” – It presents the relevant facts in an intelligible fashion and compares various securities.
  2. “Selective function” – It judges whether an investor should buy, sell, hold onto or exchange a security.
  3. “Critical function” – It monitors corporate policies, management and company structure on an ongoing basis.

Market analysis, in contrast to security analysis, attempts to forecast prices of individual securities or the action of the whole market, without referring to underlying facts about individual companies. One type of market analysis, called technical analysis, refers only to past market values in order to predict future values. A second type of analysis refers to indices of economic activity outside the market that, presumably, have some influence over security prices. Neither...

About the Authors

Benjamin Graham, who died in 1976, is considered the father of modern security analysis. The founder of the value school of investing, Graham influenced Warren Buffett and others. He was also the co-author of The Intelligent Investor and The Interpretation of Financial Statements. Graham’s protégé, economist and investor David Dodd, was an assistant professor of finance at Columbia University in New York City.

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