📘 "Security Analysis" - Benjamin Graham and David Dodd: The foundation of value investing

Hello everyone~ Today I would like to introduce a truly bible-level book in the investment world - "Security Analysis" 📈💰.

This book, co-authored by Benjamin Graham, the "Father of Value Investing," and his student and colleague David Dodd , was first published in 1934. Its origins stem from the 1929 US stock market crash, which plunged financial markets into chaos and necessitated a rational, scientific approach to analyzing securities.

Later, this book became the foundation of the value investing school and was revered by countless Wall Street professionals. Warren Buffett once said, "Security Analysis and The Intelligent Investor changed my life."

I believe that, despite its academic and dense text (the original edition was thousands of pages long!), this book is the very source of value investing. If The Intelligent Investor is an investment philosophy, then Security Analysis is an investment technique manual.

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📖 Book Background

About the Author

• Benjamin Graham : Known as the "father of value investing", he proposed important concepts such as "margin of safety".
• David Dodd : Graham's colleague and student, who later became a professor at Columbia University, focusing on finance and investment research.

Publication Background

• Year of publication: 1934.
• Background: After the Great Depression of 1929, the stock market collapsed. Investors generally relied on "guessing" rather than "analysis" to buy and sell stocks, resulting in heavy losses.
• Purpose: To provide a scientific and rational "Securities Analysis Method" to help investors avoid falling into blind speculation again.

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💡 The core concept of the book

1. The difference between investment and speculation ⚖️

• Investing : Protecting principal and pursuing reasonable returns based on in-depth analysis.
• Speculation : relying on luck or market sentiment without rational analysis.
  👉 The editor believes that this definition is still the golden rule in the investment world.

2. Margin of Safety 🛡️

• The first principle of investing is to leave enough room to avoid losing principal due to valuation errors or market fluctuations.
• Buy at a price lower than the intrinsic value to ensure that you can afford the decline.

3. Intrinsic Value 💎

• The true value of a stock or bond is not its market price, but is calculated based on the company's assets, profitability, and cash flow.
• Investors should buy assets that are priced below their value.

4. Fundamental Analysis🏢

• Emphasis on "studying financial statements": balance sheet, income statement, and cash flow statement.
• Analyze a company's strength through data, rather than relying on rumors or market sentiment.

5. The difference between stocks and bonds 📊

• Bonds : Fixed income, lower risk, but be careful of credit risk.
• Stocks : High uncertainty, but greater potential rewards.
• Investors should make allocations based on their own risk tolerance.

6. Defensive vs. Aggressive Investors 🧑💼

• Defensive type : suitable for ordinary people, emphasizes protecting principal, and invests in blue-chip stocks or high-rated bonds.
• Aggressive : Requires professional knowledge, researches unpopular or undervalued assets, and bears higher risks.

7. The significance of market fluctuations 📉📈

• Graham believes that market volatility is not a risk but an opportunity.
• When the market is pessimistic, asset prices may be far lower than their value, which is a good time to invest.

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📊 Important chapters in the book

Bond Analysis

• How to determine whether a company can fulfill its debts?
• Analyze through financial statements, interest coverage ratios, and asset-to-asset ratios.

Preferred Stock Analysis

• Preferred stocks are between stocks and bonds, with both fixed dividends and risks.
• The book points out that preferred stocks are not ideal investments unless they are significantly underpriced.

Stock Analysis

• Emphasize "profit stability" and "asset value".
• Propose the concept of "low price-to-earnings ratio and low price-to-book ratio" to find undervalued stocks.

Special Situation Investments

• For example, bankruptcy reorganization and M&A arbitrage.
• Aggressive investors can profit by studying special situations.

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🌍 "Securities Analysis" inspires Hong Kong people

1. Stock market speculation

Hong Kong investors often buy stocks based on "rumors," which is actually speculation. Graham reminds: Use data analysis, not just following trends.

2. Property Market Myths

Hong Kong people love to invest in the property market, but Graham laments that the concept of "margin of safety" also applies: don't chase high prices, leave a buffer.

3. Diversify your investments

Hong Kong people often go "all in" on the stock or property market. "Securities Analysis" reminds people to balance their stock and bond allocations to reduce risks.

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🤔 What do you think?

I think that "Securities Analysis" is as important as "The Intelligent Investor", but they have different responsibilities:

• "The Intelligent Investor" : philosophy, mentality, and principles.
• "Securities Analysis" : technology, methods, and operations.

After reading "Securities Analysis", you will understand:

• Investing is not based on "intuition" or "inside information".
• Investing relies on data, rationality and discipline .
• True masters do not chase short-term profits, but long-term steady growth.

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🎉 Editor’s Summary

Key messages from Securities Analysis:

• Investing ≠ Speculation ⚖️
• Margin of safety is the first principle of investment🛡️
• Stocks and bonds need to be analyzed separately and allocated reasonably📊
• Intrinsic value is more important than market price💎
• Investors need to know how to read financial reports and do fundamental analysis🏢
• Market volatility = opportunity, not risk📉📈

👉 So next time you're thinking about investing, why not read "Securities Analysis" first, because it will teach you how to "invest with your brain, not your emotions"! 📘✨