benjamin graham method

Intelligent Investor: Chapter 20

December 2, 2020 by Laxman Sonale 8 Comments

hello friends, in today’s article we see chapter 20 of the intelligent investor book. In this chapter, we get the Margin of safety, its advantage, and how it is important for us. Chapter 20 of the intelligent investor book, is a famous chapter and also important for investment.

The margin of Safety:-Intelligent Investor: Chapter 20

Let’s understand the margin of safety with examples, let’s consider the one bridge that has a 200-tonne capacity, on this bridge you try to pass the 199-tonne capacity truck. Most of the time your bridge is broken. So to avoid the accident, you have to take the margin of safety. If you pass the truck which has a weight of 150-tonne, then you can pass the bridge without an accident.

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So when you make the investment in the stock market. you have to consider the margin of safety. Investment with a margin of safety is good, and the best is the margin of safety with your life. (Intelligent Investor: Chapter 20)

So the author gives some points you should know.

Things to know:

Relationship between the margin of safety and diversification: When you use the margin of safety or diversification, there is only one motive is to minimize the risk of investment. so there is some relationship between margin of safety and diversification.
The secret to how to get rich is “Don’t lose”: In investment, the most important part is that don’t lose principal money, If you lose money, then you can not recover the loss of money. so recover this loss you have got a 100% gain or sometimes is 1000% gain. So the best way to get is don’t lose money. (Intelligent Investor: Chapter 20)
Always remember you can’t time the market: so many traders or some investor try to time the market for quick money, but most of the time lose their money. The intelligent investor doesn’t try to time the market. They always leave away from trading.
Don’t pay so much for a stock that you will have to regret it later: The author is telling about the overvalued stock buying.
Some questions to ask yourself before making a decision: for this, you can ask yourself is that the worst condition of the company can be recovered in past, and also if your all money is lost, you will be fine with that. You can also ask what is lost of the company instead of the probability of that to succeed.

This is all about the margin of safety from chapter 20 of the intelligent investor book.

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Intelligent Investor: Chapter 19

December 2, 2020 by Laxman Sonale 2 Comments

Hello friends, in today’s article we see chapter 19 of the intelligent investor book. In this chapter, the author gives us the relation between shareholders and management. so let’s see chapter 19 of the intelligent investor book.

Shareholders and management:- Intelligent Investor: Chapter 19

When you make the investment, the most important part is management. If your management is wrong then they will lose your money. So if you want to good investment, then you have to check the management is honest with skillful.

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How to Evaluate Management:

following are some pointers that help you to evaluate management

Shareholders should realize that they are the owners of the company: The author says, so many people make investments but they don’t think, they are the owner of the company. And they have the right to fire any mismanagement. they will do anything that helps the company with management. (Intelligent Investor: Chapter 19)
Two questions shareholders should ask: To get good management, shareholders must ask the following questions.

1. Is management reasonably efficient?
2. Are interests of average outside shareholders receiving proper recognitions?

Answering the above question you get the following answers

Ans(Q.1): to get the answer to these questions, you can get on the financial statement. Annual reports and you have to see the targets of the company. If the target is completed in previous years, and the company goes through that direction which is promises to investors. (Intelligent Investor: Chapter 19)

Ans(Q.2): To get the second question answers you have to read the Proxy statement. In this statement, you get the all information about the management and the company gives which type of recognition to management. So management is the core of investment and this part you have to check with your all knowledge and common sense.

So the author gives us some important points to analyzing annual reports and management, they are as follows.

While analyzing annual reports:

Never dig so deep into the numbers that you check your common sense at the door: So many investors read the annual reports. And make the calculations on that process. they forget the main reason behind that calculation. They miss the common sense approach. (Intelligent Investor: Chapter 19)
Always read proxy statements before and after you buy a stock: If you read the proxy statements you get the main information about the management and company contract. If your management only thinks about himself they get the benefit from the option, and they dump so many shares of the company. If they only think about building a big company, for this purpose they take the so much dept. so read the proxy statement before investment.

After this, the author said, ” stay away from the daddy-knows-best attitude.” In this case, the daddy is indicating to the management. so management is only working for you so you have all right about your company.

This is all about the shareholders and management of chapter 19 of the intelligent investor book.

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Intelligent Investor: Chapter 18

December 1, 2020 by Laxman Sonale 1 Comment

Hello friends, in today’s article we see chapter 18 of the intelligent investor, which is on A comparison of eight pairs of companies. In this chapter 18 author give the different types of companies, and which one we have to choose. so let’s see chapter 18 of the intelligent investors.

A comparison of Eight pairs of companies:-Intelligent Investor: Chapter 18

Benjamin gram gives us eight pairs of companies and also explains which one is good and bad. so let’s see the pairs of companies as follows.

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About the pairs:

REIT and REOC: These are two companies, in this REIT is a good stable company and provides the maximum dividend. In REOC companies, they take the dept and don’t give the maximum dividend. Remain with his dept they buy the asset capital which appreciates in the future. In the long term, REIT is a good performance as compared to the REOC. (Intelligent Investor: Chapter 18)
Value Stocks vs Growth Stocks: One is value stocks and the other is the growth stocks. In a short period, the value stocks perform poorly, and growth stocks perform well. But value stocks outperform in the long term as compare to growth stocks.
Bothe overvalued: Both companies are overvalued. One is more overvalued than the other companies.
One overvalued: One company is overvalued, but still went 35% up from that level. So the author gives us advice, is don’t short sell, like these companies. Because we don’t know how much time these companies stay overvalued.
One company successful but highly overpriced other companies cheap but poor fundamental: Both companies are not good investments. (Intelligent Investor: Chapter 18)
One was a publication: In this period this companies IPO is overvalued and which stocks fell later and other companies have a reasonable investment. in that other companies perform well in the long term.
One was a conglomerate: In conglomerate companies, these companies buy the shit loads or shitty modes of financing. After a few years, these companies sell some shit loads because they not perform well, so don’t buy like these companies. Another company is a diversified portfolio, and this company does well in the long term.
One didn’t pay dividends in 13 years and had acquired 24 companies: This type of company is not good for the investment, because these companies not have the focus vision with his companies. so stay away from it.

so this is all eight pairs, with that, the author gives some advice, they are as follows

Some takeaways:

sometimes there are good cause and bad cause of the company.
In the stock market, there are no such things as good stocks.
There are only good stocks price which come and go.
For example, one company discovered that rear cancer recovery drugs. Another company is a garbage company. (Intelligent Investor: Chapter 18)
In these companies, people think the rear cancer discovery drug company does well, but actually, they found the very less customer to treat whatever the treatment price as compare to the garbage company. So the author said, ” In the short-run, a market is a voting machine but in the long run it’s a weighing machine.”

So there is all about chapter 18 of intelligent investors.

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Intelligent Investor: Chapter 17

November 30, 2020 by Laxman Sonale 4 Comments

hello friends, in today’s article we see chapter 17 of the intelligent investor book. In this chapter 17 benjamin gram give four extremely instructive case studies of the company. so let’s see chapter 17 of the intelligent investors in detail.

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Four Extremely Instructive Case Studies:-Intelligent Investor: Chapter 17

Benjamin gram gives the four company case study which can help you to identify good stocks. let’s see

Company one: This company is a big joint, and well in trends, and everyone is attracted to this company. Everyone thinks they get a good return from it and that why its company goes overpriced. So the author gives the advice to stay away from it.
Company second: This company is taking the debt to acquire the other company. so check for the companies financial statement. and this type of company is a big joint but they taking dept. So stay away from it.
Company third: This company is also taking the dept to beat the big company which has a competitive advantage, so stay away from it.
Company four: This company is starting phase and start with its IPO and they get the overprice for their promises. They don’t have any experience but people start buying company shares by believing in the company’s promises. So stay away from this company also. (Intelligent Investor: Chapter 17)

so moral of the story as follows

Moral of the story:

Do the elementary job of going through annual reports extensively.
people are speculative, so don’t go with him, because they don’t do any analysis and if sometimes yes then they only look at an overview of financial statements.
Do research like compare each other between company.

so doing any investment do whole research like buying any refrigerator for your home.

This is all about chapter 17 of the intelligent investor book.

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value investor

Intelligent Investor: Chapter 16

November 30, 2020 by Laxman Sonale 3 Comments

Hello friends, today’s article is in chapter 16 of the intelligent investor book. in chapter 16, we see the convertible issues and warrants, and how they benefited investors, this all information provided in chapter 16 of the intelligent Investor book.

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Convertible Issues and Warrants: Intelligent Investor: Chapter 16

Convertible issues and warrants are types of financial instruments. These instruments sold by the company to investors for increasing funds.

Convertible Issues: This is a type of bond which have the facility to convert the bond into a share. These convertible issues helpful when you buy the bonds of the company. This bond can be converted into stocks when the stock price increases. This is one benefit of convertible issues. But, there is one thought remain. If you know the stock price is increasing. why should you buy, these convertible issues? This convertible issue gives you a consistent minimum interest. And also has a high price for convertible issues. (Intelligent Investor: Chapter 16)
Warrants: Warrants are a type of stock option, so Benjamin gram criticizes the convertible issues and warrants.

If the company has maximum warrants then you should stay away from that company. This type of company takes advantage of investor money for stupid financial instruments. If you invest in any company, then you have to decide which one you should buy is stocks or bonds. If you want the minimum return, then buy the bonds and if you want the maximum return then buy the stocks. This all decides on the company analysis, in this analysis you should read the notes of the company and financial statements.

Benjamin gram said,” Convertible issues and warrants are the worst of worlds” and other things are that if you want to invest then diversify your portfolio in the Cash, straight bonds, Domestics stocks, and foreign stocks.

So the salesman of convertible issues and warrants say,” this is the best in the world”. Because they have the big commission on that instrument so be an intelligent investor by staying away from this type of investment.

This is all about chapter 16 Convertible issues and warrants in The intelligent investor book.

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Intelligent Investor: Chapter 15

November 29, 2020 by Laxman Sonale 2 Comments

Hello friend, in today’s article we see chapter 15 of the intelligent investor book. In this chapter, benjamin gram discusses the enterprising investor criteria. These criteria help you to become an enterprising investor in-stock selection. Let’s see chapter 15 of the intelligent investor book.

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6 Criteria for the stock selection:-Intelligent Investor: Chapter 15

Strong financial condition: Each and every investor those are a defensive investor or an enterprising investor both see the strong financial condition of the company. This condition helps you to boost your confidence about the investment, so check for the strong financial condition. (Intelligent Investor: Chapter 15)
Earning Stability: Enterprising investors also check the earning stability and this earning increase by 5 % in the positive way. For this purpose, you can consider the previous year’s earnings.
Dividend Record: Great investor of all time is warren buffet say’s, ” Your investment principle get from the dividend, and this dividend you can invest in other company. all your investment money comes in the dividend form, so check for the dividend record. “
Earnings Growth: with a dividend record enterprising investors also check for the earning per share i.e. earning growth. This EPS is increased by 4% in these years as compared to the previous year.
Moderate P/E ratio: You can also for the price earning ratio. this ratio is not more than 15. If your price earning ratio is more than 15 so don’t buy that company stocks. This type of company takes money from the investor for the trading event. this type of event can be changed every time. (Intelligent Investor: Chapter 15)
Moderate P/B ratio: enterprising investors also check for the price-book ratio. this ratio is not more than 1.5. and also make calculations in between the p/e ratio and p/b ratio it’s multiple is not more than 22.5.

we see the 6 criteria for stock selection for the enterprising investor, with this author give us some other things that every enterprising investor consider.

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Other things to consider:

Net-Net result: enterprising investors see the net-net result that means current asset – current liability. making this calculation you get the exact condition of the company.
Special situations: enterprising investors check for the company’s special situations like acquire the company, novel discovery, etc. (Intelligent Investor: Chapter 15)
Selecting individual stocks is not necessary: If you are very busy in your work so you can hire a broker for your Investment.
Use virtual money to picks stocks: If you are a beginner in the stock market. Benjamin gram recommends you to practice for one year with the virtual money to picks stocks. After this, you can use your real money for the investment. (Intelligent Investor: Chapter 15)
Index funds: author give the most advice is the buy the index funds with minimum charges and invest in each and every month.

after this author gives us the two traits of an enterprising investor, those are as follows:

Disciplined and consistent: Don’t change your approach even if it is unfashionable regarding stock selection.
Pay little attention to what the market is doing: an enterprising investor has to focus on what they need to do and how to do it. (Intelligent Investor: Chapter 15)

this is all about the enterprising investor traits and criteria

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Intelligent Investor: Chapter 14

November 25, 2020 by Laxman Sonale 2 Comments

Hello friends, I am Laxman. In today’s article, we see Chapter 14 of the intelligent investor book. In chapter 14, Benjamin gram explains the Defensive investor’s criteria. These criteria help you to pick good return stocks for defensive investors. Chapter 14 of the intelligent investor give some idea for a defensive investor. Those don’t want to give full time for the research analysis. Those criteria as follow.

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7 Criteria for stock Selection:

Adequate Size of Company: Defensive investors have to consider the large size of the company for their money safety. Investing rule no.1 is that Never lose money. If you don’t make money it’s ok but doesn’t lose money. So, for this reason, select the adequate size of the company.
Strong Financial Condition: Sticking with the first rule of investing, you have to select a strong financial condition company. ( Intelligent investor: Chapter 14)
Earning Stability: Defensive investors have to check for the earning stability with continuous five to 10 years, and also check if it goes negative in any year.
Dividend Record: If you are a defensive investor, that means you have to check the dividend record If the company gives the regular dividend and gives slow growth in the dividend.
Earnings Growth: Defensive investor also checks for the earnings growth, which increases 3% in 10 years and 33% in the previous year.
Moderate P/E ratio: Defensive investors also check for the Price earning ratio. This ratio is about less than 15. This ratio, not more than 15. (Intelligent investor: Chapter 14)
Moderate P/B ratio: Defensive investors also check the P/B ratio. This ratio is not more than 1.5.

You have to consider the P/E and P/B multiple is not more than 22. if you consider the above criteria, you will be a good defensive investor. Defensive investors are those that not have enough time to research and not understand the proper accounting. Benjamin gram refer the investors which don’t have time to become enterprising investor, they have to select the longs terms index funds, that have minimum charges. you want to research for the company as a defensive investor you have to consider the above criteria. So benjamin gram gives some due diligence for the defensive investors, they are as follows.

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Due Diligence:- Intelligent investor: Chapter 14

Do your homework: If you want to select stocks on your analysis, you have to read the 5 years annual reports, quarterly reports, and proxy statements. After this, you have more knowledge about the company.
Check out your neighborhood: As a defensive investor, you have to check any investment of institutions investors, that more than the 60%. If the answer is yes then don’t invest in that company. Because when these institutions investors, make a profit they will sell the stocks then stocks price goes down. so for this reason, ownership of institutional investors is not good for individual investors.

This is all about Chapter 14 of intelligent investors.

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Intelligent Investor: Chapter 13

November 20, 2020 by Laxman Sonale 1 Comment

Hello friends, in today’s article, we see chapter 13 of the intelligent investor book. Chapter 13 of the intelligent investor, discuss the four listed companies, see them one by one.

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Comparison of Four Listed companies:-Intelligent Investor: Chapter 13

Benjamin gram gives us the four companies example to select the good stocks of the company. In these companies, the first and second are the most popular and famous ones. And remaining are the unpopular as well as strong fundamental.

The first and second number of companies is the high price. The third and fourth are the very cheap cause of unpopular.

If you have decided which company we have to choose to get the good stocks. Most of the people take the popular but they don’t think about the fundamentals of the company. (Intelligent Investor: Chapter 13)

You can not buy a company because this is famous, but most people do that. The intelligent investor chooses the company which has the fundamental strength and takes the margin of safety.

The intelligent investor goes against the cloud for the good cause with this satisfying reason.

for this purpose others give us some takeaways, they are as follows.

Some takeaways:-

To high P/E ratio are never justifiable: If some companies are famous, most of the time they have to highest P/E ratio but for the Intelligent investor this is not justifiable.
Prefer value type- investments over glamour type investment: If you want to become an intelligent investor you have to prefer value type investment over glamour type investment. In value type investment you focus on the value of the company and its stocks. and in Glamour type investment include the famous company with people opinion and those company only depends on the crowd.
Don’t pay too much for future prospects in Advance: If you want to be an intelligent investor, so pay price for the past and present performance and not pay for the future. Because the future is not in our hands, most people pay too much for the future. So the intelligent investor is careful.

This is all about chapter 13 of the intelligent investor book

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psychology of investing by a value investor

Intelligent Investor: Chapter 12

November 13, 2020 by Laxman Sonale 1 Comment

Hello, friends, in today’s article, we see Chapter 12 of the intelligent investor book. In this chapter, the author explains the things to consider about per-share earnings. Chapter 12 of the intelligent investor book gives us the right path to consider the EPS. let’s see

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Things to consider about the per share Earnings:-Intelligent Investor: Chapter 12

The author explains to us that we do not consider the EPS price on the balance sheet. so to consider the right way is are following. let’s see one by one

Reported Earnings Problem:- Intelligent Investor: Chapter 12

Ignore Pro-forma financial statements: First of all, ignore the financial statement about the EPS because behind that we don’t know the reason.
Consider the effect of dilution by stock options: you have to consider what happens when stock is diluted on EPS.
Unrealistic assumption of return on Pension Funds: If the company assumes some profit from the pension funds, then it’s the cause of concern for the investor. Because these pension funds do not stay for a longer time. (Intelligent Investor: Chapter 12)
Special hiding liabilities of the balance sheet: you have to check the purpose of doing this activity.
Capitalizing expenses as assets: You have to check to capitalize expense, and if the company considers this is an asset for the company. It’s is cause for concern.
Provision to carry-forward tax: If you check the provision to carry forward tax, and get the is there some way, then it’s maybe helpful to the company. and also check for the 10 to 20 years of provision of tax.

above-mentioned points that is come in the problem when we check for the EPS and the author gives us some normalized EPS.

Calculate an average of 7 to 10 years of earnings, or over the span of the business cycle. Then divide by Share of outstanding to get normalized EPS. (Intelligent Investor: Chapter 12)

If you want to become an enterprising investor, you have to do an effect on understanding the financial report and check the right reason for writing this. and also check for the purpose behind that. For this reason in this book Three books are referred to learn more about the financial statements, with some tips, let’s see one by one

Some tips:

you can read the annual report backward
You can read the notes to financial statements
Read more to increase your knowledge

- Financial statements analysis- Martin fridson and fermards
- The Financial numbers Game- Charles Mulford and Eugene
- Financial shenanigans- Howord shilit
- Interpretation of financial statement- author( Benjamin gram)

Follow these steps to get a good company EPS. Learn more about accounting, because warren buffet says ” Accounting is the language of business, those speak well do better business.”

This is all about Chapter 12 of the intelligent investor book.

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How to become a value investor

Intelligent Investor: Chapter 11

November 12, 2020 by Laxman Sonale 2 Comments

Hello friends, in today’s article we discuss the Security analysis for Lay(common) Investors i.e chapter 11 of the intelligent investor. In chapter 11 of the intelligent investor, Benjamin gram gives us the Four elements to consider for buying stocks. That element as follows

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4 Element to make decisions:-Intelligent Investor: Chapter 11

Company’s general long term prospects
Quality of its Management
Financial strength and Capital strength
Dividend Record

let’s see one by one

Companys general long term prospects:- Intelligent investor: chapter 11

to know about the company you have to ask two sentence

How did the company grow?
Where to come profit?

and also check the company’s acquisition and also OPM(other people’s money). If a company depends on other people’s money and they acquire other companies. This type of company does not grow well in the future, and If it depends on other people’s money, they are taking the debt on the company. Also, check the customer range of the company. if the customer is less or minimum then don’t buy the company. (Intelligent Investor: Chapter 11)

If the customer is more and maximum, then that is a good sign. Also check the good competitive advantage like coca-cola, Gillet, etc. Check the net income of the company and revenue with constant earning increases over the past 10 years. 10% is good constant earning before tax and after 7% is good.

If a company invests in Research and Development, for the future product that is a good sign for the company. Most important if the cash flow operating is negative consistently and cash flow of financing activity consistently positive then leave the company. Because this type of company taking the debt on the company. (Intelligent Investor: Chapter 11)

Quality of its management:

Management is the core of any company, so you have checked the management.

Management should be honest and complete the promises of investors and customers. you can see the company record of management and his promises, and also they are accepting the mistake and take the responsibility to handle it. And also check the stock issues, If the stock goes higher and goes down quickly is a bad sign, management has to maintain the P/E ratio. That ratio is not more than 16. (Intelligent Investor: Chapter 11)

Financial strength and capital strength:

each and every company requires finance, so you have to check finance also. for this you can do this.

You can check the Owner earning, this may be 6-7% increases consistently. also, check the Debt to equity ratio, this ratio is 1 not more than that. And you have to include in-dept called as preferred stocks. and also check the Interest coverage ratio, this may be 4 is a good sign. (Intelligent Investor: Chapter 11)

Dividend Record:

If you want to make an investment, in the long term by using compound interest. Then you have to check the dividend record. If the company has the computation record then you check the company outperformance from the computation. If this is not happening then the company wastes the investor cash, this type of company has to give the dividend. (Intelligent Investor: Chapter 11)

You have to check if the company doing the publicity of the stock split, then this type of company fools the investor and wastes the money of the investor. if the company buys back the share is a good sign of the company when they are cheap. if a company buys shares at is a higher price then they waste the money. Check for the dilute diluting if this happens stop this.

If you check these 4 elements of security analysis. you get good company,

This is all about the Security analysis for common( lay ) investors.

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