Graham, Benjamin :
Benjamin Graham (1894-1976), the father of value investing, has been an inspiration for many of today's most successful
businesspeople. He is also the author of Securities Analysis and The Interpretation of Financial Statements.
Chapter One
Investment versus Speculation: Results to Be Expected by the Intelligent Investor
This chapter will outline the viewpoints that will be set forth in the remainder of the book. In particular we
wish to develop at the outset our concept of appropriate portfolio policy for the individual, nonprofessional investor.
Investment versus Speculation
What do we mean by "investor"? Throughout this book the term will be used in contradistinction to "speculator."
As far back as 1934, in our textbook Security Analysis, we attempted a precise formulation of the difference between
the two, as follows: "An investment operation is one which, upon thorough analysis promises safety of principal
and an adequate return. Operations not meeting these requirements are speculative."
While we have clung tenaciously to this definition over the ensuing 38 years, it is worthwhile noting the radical
changes that have occurred in the use of the term "investor" during this period. After the great market
decline of 1929–1932 all common stocks were widely regarded as speculative by nature. (A leading authority stated
flatly that only bonds could be bought for investment.) Thus we had then to defend our definition against the charge
that it gave too wide scope to the concept of investment.
Now our concern is of the opposite sort. We must prevent our readers from accepting the common jargon which applies
the term "investor" to anybody and everybody in the stock market. In our last edition we cited the following
headline of a front-page article of our leading financial journal in June 1962:
SMALL INVESTORS BEARISH, THEY ARE SELLING ODD-LOTS SHORT
In October 1970 the same journal had an editorial critical of what it called "reckless investors," who
this time were rushing in on the buying side.
These quotations well illustrate the confusion that has been dominant for many years in the use of the words investment
and speculation. Think of our suggested definition of investment given above, and compare it with the sale of a
few shares of stock by an inexperienced member of the public, who does not even own what he is selling, and has
some largely emotional conviction that he will be able to buy them back at a much lower price. (It is not irrelevant
to point out that when the 1962 article appeared the market had already experienced a decline of major size, and
was now getting ready for an even greater upswing. It was about as poor a time as possible for selling short.)
In a more general sense, the later-used phrase "reckless investors" could be regarded as a laughable
contradiction in terms--something like "spendthrift misers" -- were this misuse of language not so mischievous.
The newspaper employed the word "investor" in these instances because, in the easy language of Wall Street,
everyone who buys or sells a security has become an investor, regardless of what he buys, or for what purpose,
or at what price, or whether for cash or on margin. Compare this with the attitude of the public toward common
stocks in 1948, when over 90% of those queried expressed themselves as opposed to the purchase of common stocks.
About half gave as their reason "not safe, a gamble," and about half, the reason "not familiar with."
It is indeed ironical (though not surprising) that common-stock purchases of all kinds were quite generally regarded
as highly speculative or risky at a time when they were selling on a most attractive basis, and due soon to begin
their greatest advance in history; conversely the very fact they had advanced to what were undoubtedly dangerous
levels as judged by past experience later transformed them into "investments," and the entire stock-buying
public into "investors."
The distinction between investment and speculation in common stocks has always been a useful one and its disappearance
is a cause for concern. We have often said that Wall Street as an institution would be well advised to reinstate
this distinction and to emphasize it in all its dealings with the public. Otherwise the stock exchanges may some
day be blamed for heavy speculative losses, which those who suffered them had not been properly warned against.
Ironically, once more, much of the recent financial embarrassment of some stock-exchange firms seems to have come
from the inclusion of speculative common stocks in their own capital funds. We trust that the reader of this book
will gain a reasonably clear idea of the risks that are inherent in common-stock commitments -- risks which are
inseparable from the opportunities of profit that they offer, and both of which must be allowed for in the investor's
calculations.
What we have just said indicates that there may no longer be such a thing as a simon-pure investment policy comprising
representative common stocks -- in the sense that one can always wait to buy them at a price that involves no risk
of a market or "quotational" loss large enough to be disquieting. In most periods the investor must recognize
the existence of a speculative factor in his common-stock holdings. It is his task to keep this component within
minor limits, and to be prepared financially and psychologically for adverse results that may be of short or long
duration.
Two paragraphs should be added about stock speculation per se, as distinguished from the speculative component
now inherent in most representative common stocks. Outright speculation is neither illegal, immoral, nor (for most
people) fattening to the pocketbook. More than that, some speculation is necessary and unavoidable, for in many
common-stock situations there are substantial possibilities of both profit and loss, and the risks therein must
be assumed by someone. There is intelligent speculation as there is intelligent investing. But there are many ways
in which speculation may be unintelligent ...
The foregoing is excerpted from The Intelligent Investor Rev Ed. by Benjamin Graham and Jason Zweig. All rights
reserved. No part of this book may be used or reproduced without written permission from HarperCollins Publishers,
10 East 53rd Street, New York, NY 10022
More than one million hardcovers sold
Now available for the first time in paperback!
The Classic Text Annotated to Update Graham's Timeless Wisdom for Today's Market Conditions
The greatest investment advisor of the twentieth century, Benjamin Graham taught and inspired people worldwide.
Graham's philosophy of "value investing" -- which shields investors from substantial error and teaches
them to develop long-term strategies -- has made The Intelligent Investor the stock market bible ever since its
original publication in 1949.
Over the years, market developments have proven the wisdom of Graham's strategies. While preserving the integrity
of Graham's original text, this revised edition includes updated commentary by noted financial journalist Jason
Zweig, whose perspective incorporates the realities of today's market, draws parallels between Graham's examples
and today's financial headlines, and gives readers a more thorough understanding of how to apply Graham's principles.
Vital and indispensable, this HarperBusiness Essentials edition of The Intelligent Investor is the most important
book you will ever read on how to reach your financial goals.
Adobe Reader / Digital Editions
Minimum system requirements:
- Windows 2000, Windows XP, Windows Vista, or Mac OS X 10.3 or above
- At least 256 MB RAM, a 600 mHz processor, and 110 MB of hard drive space
- 1024x768 screen resolution or larger
Software requirements:
eBooks and eChapters can be viewed by using one of the free readers listed below.
Be sure to check the format of the eBook/eChapter you purchase to know which reader you will need. After purchasing your eBook or eChapter you will be given instructions on where and how to download your free reader.
Download requirements:
Due to the size of eBooks, a high-speed Internet connection (cable modem, DSL, LAN) is required for download stability and speed. Your connection can be wired or wireless.
Being online is not required for reading an eBook after successfully downloading it.You must only be connected to the Internet during the download process.
User Help:
Click Here to access the Adobe Digital Editions FAQ
Click Here to access the Adobe Reader 7.0.9 User Guide
Adobe Digital Editions eBook Reader
Copying: Allowed, 64 selection(s) may be copied every 7 day(s)
Printing: Allowed, 64 prints for 7 day(s)
Expires: No Expiration
Reading Aloud: Allowed
Min. Software Version: Adobe Digital Edition
Suitable Devices: PCs, Tablet PCs, Macs, Laptops
Digital Rights Management (DRM) Key
Copying - Books that cannot be copied will show "Not Allowed." Otherwise, this will detail the number of times it can be copied, or "Allowed with no limits."
Printing - Books that cannot be printed will show "Not Allowed." Otherwise, this will detail the number of times it can be printed, or "Allowed with no limits."
Expires - Books that have no expiration (the date upon which you will no longer be able to access your eText) will read "No Expiration." Otherwise it will state the number of days from activation (the first time you actually read it).
Reading Aloud - Books enabled with the "text-to-speech" feature so that they can be read aloud will show "Allowed."
Min. Software Version - This is the minimum software version needed to read this book.
Suitable Devices - Hardware known to be compatable with this book. Note: Reader software still needs to be installed.
(0 items)
A used textbook that does not have:
