Investing
United States · 20th century
5 ideas
Buy on AmazonBenjamin Graham's account of his life, education, investing work and the development of value investing.
In Graham's definition, an operation counts as an investment only if thorough analysis shows it promises both safety of the original money and a satisfactory return. Anything that fails either test is speculation, however respectable it looks. The label depends on the reasoning behind a purchase, not on what is bought.
A reviewer reads the book as the story of a very bright man who invested well and then used the freedom money gave him for his own purposes. Some of those purposes were good and some were bad. On this reading, financial success widens a person's choices without settling what they will choose.
Graham recalls that in his early years nearly everyone who traded stocks openly called themselves a speculator. They saw little difference between buying shares and betting at the racetrack. A discipline of careful analysis had to be built against a culture that treated markets as a game of chance.
Graham notes wryly that brokerage firms once routinely took clients' bets on presidential elections. The practice was banned only when the stock exchange set out to look respectable. Graham presents the reform as driven by the exchange's public image rather than by a new conviction that the betting itself was wrong.
A reviewer explains that Graham profited from seeing that convertible bonds and preferred shares carry a built-in right to switch into common stock, a right the market often undervalued. He would buy the convertible security and bet against the common stock at the same time. This captured the mispriced right while limiting his exposure to the company's fortunes.