Stock Value

Some essential value investing books and reading:

The Intelligent Investor by Benjamin Graham - The definitive value investing guide.  This is where everyone should start to learn about value investing.  This updated version contains heavy commentary from 2003 by Jason Zweig, journalist/author currently working with The Wall Street Journal with writing experience at Money, Forbes and Time magazine.

The new commentary are basically supplemental chapters added to each original one by Graham, adding modern examples & context to the 1973 4th edition of this classic (first published in 1949).  Jason Zweig uses the dot com boom & bust as a backdrop upon which to explain the value investing principles Graham professed.  There are hardly any formulas and no complex math contained within as this book focuses on the philosophy of value investing and the habits of a value investor.

1976 Interview of Benjamin Graham by Financial Analysts Journal - Near the end of his life, Graham, reflects upon what has and hasn’t changed to value investing over the 40 years since authoring Security Analysis and The Intelligent Investor.  Key points in the interview include his several simplified methods for finding value stocks (example: P/E 7x or less for the trailing twelve months), his opinion that extensive security analysis was no longer profitable, his foolproof method of picking stocks which earned him nearly 20% returns over a 30 year period (stock price < (current assets - total liabilities) / outstanding shares).

Quick Summary of Benjamin Graham - Includes biography, bond selection/stock selection criteria and investment record during his career.

Security Analysis by Benjamin Graham and David Dodd - The complement to The Intelligent Investor explaining how to determine fair value of securities (stocks and bonds), thus allowing the investor to recognize securities selling at a discount to their underlying value.

This sixth edition is abridged at 700 pages, but includes a cd-rom of the original second edition, containing the 10 chapters and appendices removed from the 2nd edition.

Better find a comfy chair before starting this badboy.

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Berkshire Hathaway Annual Letters - by Warren Buffett - Over 30 years of annual shareholder letters available directly from Berkshire Hathaway, written by the master of value investing himself, Warren Buffett.  In these letters he details the investment philosophy he and Charlie Munger share and operate under and what has happened during the year for those invested in Berkshire’s funds (BRK.A & BRK.B) in a manner that is enlightening, honest and entertaining.  Much can be learned in the way of value investing by simply studying the footsteps Mr. Buffett has taken along the years, through good years and bad, in managing the hundreds of billions invested in Berkshire Hathaway.

Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor by Seth Klarman - This book is a bit of an enigma.  First published in 1991, it sold well, but was never reprinted.  Its price (for original first printings) has skyrocketed to somewhere around $700 - $2300 a copy. That’s pretty good price appreciation for a book.  Maybe Klarman wants to exemplify how contrarian investments (like in books) can turn out to be big winners.  Or maybe the publisher and he never agreed on terms for a reprint.  Or he’s got a few thousand copies that he’s secretly selling on the side to fund a new sportscar. Regardless, he probably didn’t forsee in 1991 some kids deciding to scan the entire Margin of Safety book as a PDF and put it online for anyone to download… for free. I guess learning how to use Google is an investment itself.

Klarman’s review of the junk bond market of the 80s is hauntingly prescient of today’s CDO collapse.  Basically, the idea of slicing-up junk quality debt (sub-prime mortgages of today or corporate junk bonds of the 1980s) and selling them as a traded security is nothing new.  The collapse of the CBO (collateralized bond obligation) in the 90s should have been a huge warning to the current CDO (collaterlized debt obligation) buyers.  Graham quoted Santayana in The Intelligent Investor “Those who do not remember history, are condemned to repeat it“. Bear Stearns, Citigroup, Merrill Lynch, Lehman Brothers and countless others should now be quite familiar with this saying.

Bruce Greenwald interview at Fool.com - Professor of the current value investor course at Columbia School of Business (alma mater of Ben Graham & Warren Buffett) talks about value investing. The first part of this interview is quite a good read (the subsequent pieces I found a little unclear). (Note: be extremely cautious of any investment techniques/advice found at Fool.com.  The Foolish Four is an example of the sheer idiocy that has traversed their pages).

JasonZweig.com - Commentary author on the latest edition of The Intelligent Investor and current columnist for the Wall Street Journal. The site acts as a general resource on becoming a better, more intelligent (and less emotional) investor.

Peter Lynch Approach to Value Investing by the American Association of Independent Investors - This legendary mutual fund manager achieved 25.8% return over a 20 year period. An excellent summary of the numerous techniques employed by Lynch during his stellar career.

Finance in the 21st Century by Nouriel Roubini & Robert Schiller - A series of ongoing essays by two prominent U.S. economists on the current state of the U.S. financial system.