Security Analysis by Benjamin Graham and David Dodd is the pre-eminent text on assessing the fundamental value of any equity or debt instrument. So let me just say…
If you’re interested in learning about fundamental analysis, then Security Analysis should be your go to reference book. It’s all about understanding the intrinsic value of a business…
And more importantly: If that means you should invest in the business. In this book review I will tell you lots more about this classic investing book. For example:
The breadth and depth of Graham and Dodd‘s Security Analysis is so encompassing that whether you’re looking at obscure convertible debt instruments or common stocks, there is sure to be advice you can use to guide your decisions. And by the way…
If you’ve never heard of Security Analysis before:
A few years ago, Warren Buffett said he’s read Security Analysis four times. And actually…
Graham and Dodd were both Professors of Finance at Columbia University who taught Warren Buffett at the outset of his investing career. Buffett was so enthralled with what he learned from Graham and Dodd that he eventually went to work for them at their investment company.
Additionally, you may have already read the best selling Intelligent Investor, which is a watered down version of this seminal text. But with Security Analysis, you’re getting the gory details…
Why You Should Read Security Analysis:
Security Analysis is a fascinating read. And if you’re obsessed with investing, or contemplating a career in finance, then it is absolutely a book you can’t miss. It was originally published in 1934 and has stood the test of time (including the scrutiny of Efficient Market Theorists). The newest editions of this classic investing book also have contemporary commentary from modern day investing legends. It’s really helpful how the expert advice is applied to today’s markets.
And I mean all markets. Security Analysis coves all types of securities, debt instruments and asset classes. In fact, when I started reading Security Analysis I was a little bored because the first couple hundred pages are all about investing and valuing various types of bonds. Security Analysis was definitely instructive, but it wasn’t totally applicable to what I was doing. Luckily…
Security Analysis spends hundreds of pages focusing on the different tricks and tactics management can use to deceive investors. It’s really insightful to see these financial sleights of hand called out. And learning how to avoid them makes you a much better investor. But before I get too carried, away, there’s something you should know.
Security Analysis isn’t for everyone…
Who Should NOT Read Security Analysis:
Security Analysis is an amazingly in-depth look at equity, debt and almost any other investment you can think of. But if you’re just getting started out in your investing, this book might discourage you. This is a professional-level discussion about how to figure out what securities are worth, so there is a lot of detail that might bog you down if you’re just getting started.
So what do I recommend?
Beginners might want to avoid this 950 page textbook-style book. Instead: If you’re just starting out with your investing, or you have a more passive interest in picking your stocks, then you would probably be better off reading The Intelligent Investor. This book was published by Ben Graham to make the lessons of Security Analysis a little more digestible for the average person.
The Intelligent Investor is the book I read before Security Analysis and highly recommend starting there if you’re not familiar with Benjamin Graham. So let me just say one more thing:
If your main focus is day trading stocks, or using technical analysis to guide your decision-making, then Security Analysis is not for you. Security Analysis is entirely fundamental in scope. And that’s because it is a veritable bible of Fundamental Analysis. It’s an in-depth reference book that serves as a college textbook at some of the world’s best business schools.
The Best Part About Security Analysis:
Security Analysis is an incredibly instructive read. And since it is so old you can tell it’s stood the test of time. There is a long list of successful investors who have attributed their huge portfolios to the school of value investing (See: The Superinvestors of Graham-and-Doddsville – an essay by Warren Buffett).
The evidence is pretty overwhelming. Which leads me to say: My favourite part about Security Analysis is that you know the information is trustworthy. Now I know that sounds simple… But, it’s especially important in today’s day and age.
Think about it:
More and more people are learning to trade their own stocks online. And there are tons of internet newsletters promoting pump and dump stock schemes… so having good information goes a long way. Since Security Analysis is a 90 year old textbook written by brilliant business professors and fund managers, you know you can trust it… (And use it to make money).
Now some people say…
“If this kind of fundamental analysis works so well why isn’t everyone a value investor?” And the truth is, value investing is almost always emotionally difficult. Fundamental analysis can be safe in the long term, but it might be dangerous from the perspective of a short term technical trader. So inherently, there is a lot of volatility involved. And that can be tough to stomach.
For people who are actively managing their investments and looking to trade their stocks every couple of days, this fundamental approach just doesn’t make sense, (at least not on it’s own). You day-traders quickly exploit short term intra-day inefficiencies. The value investing methodology is concerned with the fundamental underpinnings of the longer-term trend. But…
At the end of the day, that’s a pretty good thing to know too!
Security Analysis – The Final Word
Security Analysis by Benjamin Graham and David Dodd is a book like no other. It gives an object view on investing intelligently in all sorts of asset classes. After reading this book, I understood why it was so important to Warren Buffet. I use the methodology described every day, in every investing decision I make.
So if you’re seriously interested in investing and are pursuing a career in finance then I really recommend you buy Security Analysis on Amazon right now.