If you’re going to invest in specific securities it is very likely that you will not simply examine a single security/company, but that you will want to understand how that security/company looks relative or in comparison to other securities/companies. In this chapter, Graham compares four listed companies. The companies themselves are irrelevant for our discussion, but what the chapter offers is an insight into how Graham thinks about analysis.
It’s a discussion Graham shares in the following chapters, but for now he focuses on profitability, stability (past declines in earnings), growth, financial position, dividends, and price history.
Without getting into all of the details, what stands out to me is that Graham’s thinking shows that price matters, warning that “the careful investor wants to be reasonably sure in advance that he is not committing the typical Wall Street error of over enthusiasm for good performance in earnings and in the stock market.”
So what did Zweig take away from this chapter?
Commenting on Commentary on Chapter 13
Likely realizing the four companies that Graham discussed would feel irrelevant to the reader of the 2000’s, Zweig offers up analysis of 4 stocks using their 12/31/1999 numbers. Like Graham he picked for companies starting with the letter “E”, Emerson Electric (the only stock from Graham’s original 1970 list), EMC Corp., Expeditors International of Washington and Exodus communications.
In case you’re curious about the journey of these companies and stocks over the last 25 years, here’s a quick summary:
It’s interesting that Emerson Electric was a stock that Graham was cautious about back in 1970, not because of the business, but because of the price the shares were trading at.
I won’t belabor the discussions around these companies, the point Zweig and Graham are both making is that a great company can still be a bad investment if purchased at too high a price.
The inverse can also hold true, seemingly boring companies can be excellent investments at the right price.
Just like in Graham’s era, Zweig’s writing highlights that investors fall into the one of the same behavioral traps time in memoriam. We overpay for exciting narratives, we pay handsomely for the future in advance.
“In the Air Force we have a rule: check six. A guy is flying along, looking in all directions, and feeling very safe. Another guy flies up behind him (at “6 o’clock”) and shoots. Most airplanes are shot down that way. Thinking that you’re safe is very dangerous! Somewhere, there’s a weakness you’ve got to find. You must always check six o’clock.
-U.S. Air Force Gen. Donald Kutyna
No comments:
Post a Comment