Security Analysis is a seminal book written by the grandfather of value investing Benjamin Graham and David Dodd, a professor at the Columbia University. It was published in 1934. I started reading it about a couple of years ago but have yet to reach Chapter 3 (out of over 50 chapters). The book has over 700 pages.
The reason for such slowness is due to the way this book was written. First, it was written by two intellects espousing difficult concepts in investing. The language they used is not common day English and it does not help that it was written over 80 years ago when the usage of English wa probably different. Nevertheless, I believe there is value in finishing this book and as I complete these chapters, I hope to jot down my learnings here.
The first lesson learnt today is about trying to model earnings trend. As it is now vs 80 years ago, analysts like to model future earnings. They could create models for the next 5 years, or the next 10 and based on their model, they believed they can calculate the intrinsic value the stock. This is also what I have done for various stocks on this infosite.
To the grandfather of value investing, this is actually bullshit. The future earnings, in their minds, are not even quantitative numbers. They are merely qualitative assumptions of the future. The way they explained it, only past financial numbers are quantitative. They are track record achieved and they provide an idea how this business can perform and how cyclical or defensive the business can be.
They look for variance in earnings, look at long term (10 years) trends and is very discerning about what is truly quantitative i.e. not disputable. I guess this is simply another verification of how Ben Graham was always looking at hard numbers, net nets and balance sheets because everything else is just qualitative.
So this is it, first lesson from Security Analysis. Hope to come back with more in the future chapters!