Benjamin Graham Quotes

An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.

Individuals who cannot master their emotions are ill-suited to profit from the investment process.

When values are determined chiefly by the outlook, the resultant judgments are not subject to any mathematical controls and are almost inevitably carried to extremes.

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of good business conditions. The purchasers view the good current earnings as equivalent to 'earning power' and assume that prosperity is equivalent to safety.

You will be much more in control, if you realize how much you are not in control.

The investor has a right to expect good results to flow from a consistent and courageous application of the principle of buying after the market has declined substantially and selling after it has had a spectacular rise. But he cannot expect to reduce this principle to a simple and foolproof formula, with profits guaranteed and no anxious periods.

The stock market resembles a huge laundry in which institutions take in large blocks of each others washing ... without rhyme or reason.

The intelligent investor should recognize that market panics can create great prices for good companies and good prices for great companies.

Speculative stock movements are carried too far in both directions, frequently in the general market and at all times in at least some of the individual issues.

There is something paradoxical in the fact that by establishing an export market we subject our entire domestic production to the vagaries of that market.

Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble ... to give way to hope, fear and greed.

Buy when most people, including experts, are pessimistic, and sell when they are actively optimistic,

The essence of investment management is the management of risks, not the management of returns.

The art of investment has one characteristic that is not generally appreciated. A creditable, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability; but to improve this easily attainable standard requires much application and more than a trace of wisdom. If you merely try to bring just a little extra knowledge and cleverness to bear upon your investment program, instead of realizing a little better than normal results, you may well find that you have done worse.

The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage.

The investor's chief problem - and even his worst enemy - is likely to be himself.

You may take it as an axiom that you cannot profit in Wall Street by continuously doing the obvious or the popular thing

Even the most conservative must realize that the recent transformation of surplus from an individual to a national disaster implies a scathing indictment of our capitalist system as it has now developed.

The value of the security analyst to the investor depends largely on the investor's own attitude. If the investor asks the analyst the right questions, he is likely to get the right or at least valuable answers.

There is no reason to feel any shame in hiring someone to pick stocks or mutual funds for you. But there's one responsibility that you must never delegate. You, and no one but you, must investigate whether an adviser is trustworthy and charges reasonable fees.

The investor is neither smart not richer when he buys in an advancing market and the market continues to rise. That is true even when he cashes in a goodly profit, unless either (a) he is definitely through with buying stocks an unlikely story or (b) he is determined to reinvest only at considerably lower levels. In a continuous program no market profit is fully realized until the later reinvestment has actually taken place, and the true measure of the trading profit is the difference between the previous selling level and the new buying level.

The volume of credit depends upon three factors: the desire to borrow, the ability to lend and the desire to lend.

In the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand.

Diversification is an established tenet of conservative investment.

If General Motors is worth $60 a share to an investor it must be because the full common-stock ownership of this gigantic enterprise as a whole is worth 43 million (shares) times $60, or no less than $2,600 million.

Never buy a stock immediately after a substantial rise or sell one immediately after a substantial drop.

Here is an all-too-brief summary of Buffett's approach: He looks for what he calls "franchise" companies with strong consumer brands, easily understandable businesses, robust financial health, and near-monopolies in their markets, like H & R Block, Gillette, and the Washington Post Co. Buffett likes to snap up a stock when a scandal, big loss, or other bad news passes over it like a storm cloud - as when he bought Coca-Cola soon after its disastrous rollout of "New Coke" and the market crash of 1987. He also wants to see managers who set and meet realistic goals; build their businesses from within rather than through acquisition; allocate capital wisely; and do not pay themselves hundred-million-dollar jackpots of stock options. Buffett insists on steady and sustainable growth in earnings, so the company will be worth more in the future than it is today.

In all of these instances he appears to be concerned with the intrinsic value of the security and more particularly with the discovery of discrepancies between the intrinsic value and the market price.

The modern world is not geared properly to the storage of goods.

Every corporate security may be best viewed, in the first instance, as an ownership interest in, or a claim against, a specific business enterprise.

Good managements produce a good average market price, and bad managements produce bad market prices.

I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities.

In the old legend the wise men finally boiled down the history of mortal affairs into a single phrase: 'This too will pass.'

In most cases the favorable price performance will be accompanied by a well-defined improvement in the average earnings, in the dividend, and in the balance-sheet position. Thus in the long run the market test and the ordinary business test of a successful equity commitment tend to be largely identical.

you must thoroughly analyze a company, and the soundness of its underlying businesses, before you buy its stock; you must deliberately protect yourself against serious losses; you must aspire to "adequate," not extraordinary, performance.

Most businesses change in character and quality over the years, sometimes for the better, perhaps more often for the worse. The investor need not watch his companies' performance like a hawk; but he should give it a good, hard look from time to time.

Obvious prospects for physical growth in a business do not translate into obvious profits for investors.

Successful investing professionals are disciplined and consistent and they think a great deal about what they do and how they do it.

On January 7, 1973, the New York Times featured an interview with one of the nation's top financial forecasters, who urged investors to buy stocks without hesitation: "It's very rare that you can be as unqualifiedly bullish as you can now." That forecaster was named Alan Greenspan, and it's very rare that anyone has ever been so unqualifiedly wrong as the future Federal Reserve chairman was that day: 1973 and 1974 turned out to be the worst years for economic growth and the stock market since the Great Depression.

It's nonsensical to derive a price/earnings ratio by dividing the known current price by unknown future earnings.

The trend is, in fact, a statement of future prospects in the form of an exact prediction.

The reader can test his own psychology by asking himself whether he would consider, in retrospect, the selling at 156 in 1925 and buying back at 109 in 1931 was a satisfactory operation. Some may think that an intelligent investor should have been able to sell out much closer to the high of 381 and to buy back nearer the low of 41. If that is your own view you are probably a speculator at heart and will have trouble keeping to true investment precepts while the market rushes up and down.

It is our view that stock-market timing cannot be done, with general success, unless the time to buy is related to an attractive price level, as measured by analytical standards. Similarly,

A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.

In the financial markets, hindsight is forever 20/20, but foresight is legally blind. And thus, for most investors, market timing is a practical and emotional impossibility.

The distinction between investment and speculation in common stocks has always been a useful one and its disappearance is cause for concern.

We urge the beginner in security buying not to waste his efforts and his money in trying to beat the market. Let him study security values and initially test out his judgment on price versus value with the smallest possible sums.

... Bond selection is primarily a negative art. It is a process of exclusion and rejection, rather than of search and acceptance.

Whenever the investor sold out in an upswing as soon as the top level of the previous well-recognized bull market was reached, he had a chance in the next bear market to buy back at one third (or better) below his selling price.

There is no room in this philosophy for a middle ground, or a series of gradations, between the passive and aggressive status. Many,

Unusually rapid growth cannot keep up forever; when a company has already registered a brilliant expansion, its very increase in size makes a repetition of its achievement more difficult.

Even with a margin of safety in the investor's favor, an individual security may work out badly. For the margin guarantees only that he has a better chance for profit than for loss - not that loss is impossible. But as the number of such commitments is increased the more certain does it become that the aggregate of the profits will exceed the aggregate of the losses.

The intelligent investor gets interested in big growth stocks not when they are at their most popular - but when something goes wrong.

Among the things that should make your antennae twitch are technical terms like "capitalized," "deferred," and "restructuring" - and plain-English words signaling that the company has altered its accounting practices, like "began," "change," and

Many skeptics, it is true, are inclined to dismiss the whole procedure [chart reading] as akin to astrology or necromancy; but the sheer weight of its importance in Wall Street requires that its pretensions be examined with some degree of care.

While a trend shown in the past is a fact, a "future trend" is only an assumption.

Successful investment may become substantially a matter of techniques and criteria that are learnable, rather than the product of unique and incommunicable mental powers.

The Interborough issues are an example of a rather special group of situations in which analysis may reach more definite conclusions respecting intrinsic value than in the ordinary case. These situations may involve a liquidation or give rise to technical operations known as "arbitrage" or "hedging.

Real investment risk is measured not by the percent that a stock may decline in price in relation to the general market in a given period, but by the danger of a loss of quality and earnings power through economic changes or deterioration in management.

Stock
speculation is largely a matter of A trying to decide what B, C and D
are likely to think-with B, C and D trying to do the same.

Both a priori reasoning and experience teach us that as as these funds grow larger the geometrical rate of growth by compound interest ultimately defeats itself.

An investor calculates what a stock is worth, based on the value of its businesses.

By developing your discipline and courage, you can refuse to let other people's mood swings govern your financial destiny. In the end, how your investments behave is much less important than how you behave.

Perhaps many of the security analysts are handicapped by a flaw in their basic approach to the problem of stock selection. They seek the industries with the best prospects of growth, and the companies in these industries with the best management and other advantages. The implication is that they will buy into such industries and such companies at any price, however high, and they will avoid less promising industries and companies no matter how low the price of their shares. This would be the only correct procedure if the earnings of the good companies were sure to grow at a rapid rate indefinitely in the future, for then in theory their value would be infinite. And if the less promising companies were headed for extinction, with no salvage, the analysts would be right to consider them unattractive at any price.

When somebody asserts that a stock has an earning power of so much, I am sure that the person who hears him doesn't know what he means, and there is a good chance that the man who uses it doesn't know what it means.

The stock investor is neither right or wrong because others agreed or disagreed with him; he is right because his facts and analysis are right.

The best values today are often found in the stocks that were once hot and have since gone cold.

Wall Street has a few prudent principles; the trouble is that they are always forgotten when they are most needed.

The quantitative factors lend themselves far better to thoroughgoing analysis than do the qualitative factors. The former are fewer in number, more easily obtainable, and much better suited to the forming of definite and dependable conclusions.

Many progressive economists insist that gold is now in essentially the same position as silver and that the arguments the simon-pure gold advocates use against the white metal can be directed with equal effect against their own fetish.

The most striking thing about Graham's discussion of how to allocate your assets between stocks and bonds is that he never mentions the word "age".

An intelligent investor gets satisfaction from the thought that his operations are exactly opposite to those of the crowd.

We shall dismiss these with the observation that their work does not concern "investors" as the term is used in this book.

In an ideal world, the intelligent investor would hold stocks only when they are cheap and sell them when they become overpriced, then duck into the bunker of bonds and cash until stocks again become cheap enough to buy.

Why should the cotton growers suffer if there is shortage of wheat?

No matter how careful you are, the one risk no investor can ever eliminate is the risk of being wrong. Only by insisting on what Graham called the "margin of safety" - never overpaying, no matter how exciting an investment seems to be - can you minimize your odds of error.

Confusing speculation with investment is always a mistake.

A cynic once told G. K. Chesterton, the British novelist and essayist, "Blessed is he who expecteth nothing, for he shall not be disappointed." Chesterton's rejoinder? "Blessed is he who expecteth nothing, for he shall enjoy everything.

I am more and more impressed with the possibilities of history's repeating itself on many different counts. You don't get very far in Wall Street with the simple, convenient conclusion that a given level of prices is not too high.

A price decline is of no real importance to the bona fide investor unless it is either very substantial say, more than a third from cost or unless it reflects a known deterioration of consequence in the company's position. In a well-defined bear market many sound common stocks sell temporarily at extraordinary low prices. It is possible that the investor may then have a paper loss of fully 50 per cent on some of his holdings, without any convincing indication that the underlying values have been permanently affected.

Wall Street people learn nothing and forget everything.

To enjoy a reasonable chance for continued better than average results, the investor must follow policies which are (1) inherently sound and promising, and (2) not popular on Wall Street.

Buy cheap and sell dear.

The purpose of this book is to supply, in the form suitable for laymen, guidance in the adoption and execution of an investment policy.

The world has not learned the technique of balanced expansion without the resultant commercial and financial congestion.

It always seemed, and still seems, ridiculously simple to say that if one can acquire a diversified group of common stocks at a price less than the applicable net current assets alone - after deducting all prior claims, and counting as zero the fixed and other assets - the results should be quite satisfactory.

And back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he "could calculate the motions of the heavenly bodies, but not the madness of the people." Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price - and lost £20,000 (or more than $3 million in today's money). For the rest of his life, he forbade anyone to speak the words "South Sea" in his presence. 4

The utility, or intrinsic value of gold as a commodity is now considerably less than in the past; its monetary status has become extraordinarily ambiguous; and its future is highly uncertain.

Avoid second-quality issues in making up a portfolio unless they are demonstrable bargains.

The market is always making mountains out of molehills and exaggerating ordinary vicissitudes into major setbacks.

THERE is widespread agreement among economists that abuse of credit constitutes one of the chief unwholesome elements in business booms and is mainly responsible for the ensuing crash and depression.

If we assume that there are normal or standard income results to be obtained from investing money in securities, then the role of the adviser can be more readily established. He will use his superior training and experience to protect his clients against mistakes and to make sure that they obtain the results to which their money is entitled.

The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator's primary interest lies in anticipating and profiting from market fluctuations. The investor's primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which he certainly should refrain from buying and probably would be wise to sell.

We have been trying to point out that this concept of an indefinitely favorable future is dangerous, even if it is true; because even if it is true you can easily overvalue the security, since you make it worth anything you want it to be worth. Beyond this, it is particularly dangerous too, because sometimes your ideas of the future turn out to be wrong. Then you have paid an awful lot for a future that isn't there. Your position then is pretty bad.

... investors are constitutionally averse to buying into a troubled situation.

Price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.

The market made up new standards as it went along, by accepting the current price - however high - as the sole measure of value. Any idea of safety based on this uncritical approach was clearly illusory and replete with danger.

By refusing to pay too much for an investment, you minimize the chances that your wealth will ever disappear or suddenly be destroyed.

The genuine investor in common stocks does not need a great equipment of brain and knowledge, but he does need some unusual qualities of character

The purchase of a bargain issue presupposes that the market's current appraisal is wrong, or at least that the buyer's idea of value is more likely to be right than the market's. In this process the investor sets his judgement against that of the market. To some this may seem arrogant or foolhardy.