Graham and Dodd, Security Analysis Chap 3 & 4: Survey and Approach

In this book, Chapter 3 covers on where to look for information for fundamental investors. His list of sources of information are:

• SEC
• Standard & Poor, Fitch or other statistical agencies
• Federal Trade Commission
• Committee on interstate & Foreign Commerce
• Commercial & Financial Chronicle
• Requests for information directly from the company
• Looking at its registration statements and prospectus

In Chapter 4, they covered on the difference between Investment and Speculation.

1. Graham believes that buying securities with the hope of profiting in a short period of time is deemed as speculation.
2. A slow growth in value & constant dividends does not mean it is a bad investment
3. Graham approach to investing is to hold long periods and focus on dividends for constant income and growth in share price for appreciation which he considers as investment
4. Looking towards a quick rise in value & despise dividends can lead to speculation.
5. Margin of safety is the most important concept to embrace in investing. One of his views is to reduce the loss of capital.
6. Safety of margin is much more easier to estimate and adjust if the company holds tangible assets
7. So when to sell? Graham sells when the market price is higher than the intrinsic value. This intrinsic value is the value which Graham estimates from the company financial statements
8. The value of the security derived from calculating or estimating does not means that it can be consider as a total safety factor. The industry & business may have certain risk that is unable to use maths or numbers to calculate. Therefore this leads to diversification to reduce the risk.
9. Blue chip companies are not consider safe investments all the time. Demand and economy change with time, so does business. If the blue chip business is not able to catch up with the changing times, sooner or later the company will be out of business

Lastly Graham views on Investment Value, Speculative value and Intrinsic value.
For ecxample, a security is selling in the market at $38. $38 is the investment value. Suppose after estimating, the intrinsic value is $25. Therefore $13 will be consider as speculative value. The reason why it is speculative value is because this value is appraise by the general market and every individual investor judgement.