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Benjamin Graham and the Power of Growth Stocks: Lost Growth Stock Strategies from the Father of Value Investing
Use a master’s lost secret to pick growth companies bound for success In 1948, legendary Columbia University professor Benjamin Graham bought a major stake in the Government Employees Insurance Corporation. In a time when no one trusted the stock market, he championed value investing and helped introduce the world to intrinsic value. He had a powerful valuation formula. Now, in this groundbreaking book, long-term investing expert Fred Martin shows you how to use value-investing principles to analyze and pick winning growth-stock companies―just like Graham did when he acquired GEICO. Benjamin Graham and the Power of Growth Stocks is an advanced, hands-on guide for investors and executives who want to find the best growth stocks, develop a solid portfolio strategy, and execute trades for maximum profitability and limited risk. Through conversational explanations, real-world case studies, and pragmatic formulas, it shows you step-by-step how this enlightened trading philosophy is successful. The secret lies in Graham’s valuation formula, which has been out of print since 1962―until now. By calculating the proper data, you can gain clarity of focus on an investment by putting on blinders to variables that are alluring but irrelevant. This one-stop guide to growing wealth shows you how
305 pages, Hardcover
First published November 11, 2011
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368 people want to read
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Displaying 1 - 9 of 9 reviews
December 12, 2011
This was a quick, enjoyable read. It took me about 4 to 4.5 hours to read which made me feel quite productive. I'm usually a very slow reader but I suppose this went quicker since I'm fairly acquainted with the subject.
There are a few quotes that I enjoyed and would like to share (1) "The investor's chief enemy is likely to be himself" (2) "The rate of return should be dependent, rather, on the amount of intelligent effort the investor is willing and able to bear on the task" and
(3)"To have a true investment there must be present a true margin of safety. And a true margin of safety is one that can be demonstrated by figures, by persuasive reasoning, and by reference to a body of actual experience."
The main thrust of the book is a lost chapter regarding how to value a stock that is growing. The author produced the the lost chapter in this particular book. For enterprising readers this can also be found in the 4th edition of Security Analysis. It wasn't include in the 5th edition. Graham scholars will also likely voice their skepticism how much this chapter was written by Graham and how much was written by Sidney Cottle (Graham wrote the first three editions of Security Analysis by himself while Dodd helped with note-taking). That being said, there is a lot to like in the book. It was written for the general reader so the analysis doesn't go into too much depth but, like Graham, that is also the strength of the book, meaning, everything is include in this book for the enterprising investor to analyze a company. This does assume the reader has a good grasp of accounting and other subjects but it is quiet useful for simple companies.
I appreciated the fact the author points out the flaws of the sharpe ratio (sharpe assumes stationary variance) another is the difficulty of estimating interest rates. For example, from 65-82 interest rates went up dramatically, thus, if someone assumed stable interest rates through that time period (which was fairly close from the 50's to mid 60's) that would have resulted in overestimating the return (higher interest rate will reduce the rate of return) or from 82-2000 interest rates went down dramatically, this would have resulted in underestimating returns if a model included higher rates.
Graham liked to keep things simple. For example, if there is a 90% probability of 5 variables, the probability of getting that problem correct is about 59%. If a problem has 9 variables and they all have a 90% probability, the probability of that problem working out is about 38%. Buffett used an example similar to that at an annual meeting once and I never forgot it. It is easy in this media rich world to be "led astray"-as brother Malcom would say-from charlatans and salesman talking about high growth rates that simply fail to pass the smell test once simple arithmetic or probability is employed. If one wants to argue with growth rates that are too high, they should go into sales and not into security analysis, but I digress. Graham believed anything higher than elementary algebra to ascertain the value of a company is not only inefficient but dangerous, meaning, it invites a false precision. Indeed, this actually a large reason for the most recent bubble we had that popped in 2008, although, to be fair, bubbles will happen without models using higher mathematics and assuming a false precision. This can be observed from a cursory reading of financial history going back to tulip mania in the 1600's.
One formula that is used in the book is Intrinsic Value= 8.5 plus (2 times g) times earnings per share.. For example, assume that company A has earnings per share of 1 dollar, further assume that the growth rate is 10% and the time to model this is 7 years then in 7 years earnings per share is 2 dollars. We would multiply 2 times 10 or 20 then add 8.5 or 28.5 for the result. IV in this case would be 20x2 equals 40 plus 8.5 equals 48.5. Of course, the lower the growth rate, the lower the p/e multiple. This would obviously not be used in isolation but it could be helpful after doing a more in depth analysis and using it as one additional step. Graham was brilliant and could have employed esoteric math (Columbia asked him to be a Professor in the Maths department when he was in his early 20's) but he simply thought this wasn't useful or accurate. After all, if someone was looking at buying a coffee shop or apartment down the street, if they used several spreadsheets and consulted with a Phd in maths, that wouldn't help in determining the value of the enterprise, it may even hurt.
This was an enjoyable read. I also like the chapter on competitive advantage. I thought this book might try and completely twist Graham and take him completely out of context and although there is a little bit of that due to the emphasis on the formula above, there is enough in the book to bring it almost back into balance and give the reader a reasonable exposure to Graham along with some chapters that was out of Graham's baliwick (such as the chapter on competitive advantage which was a joy to read as well).
There are a few quotes that I enjoyed and would like to share (1) "The investor's chief enemy is likely to be himself" (2) "The rate of return should be dependent, rather, on the amount of intelligent effort the investor is willing and able to bear on the task" and
(3)"To have a true investment there must be present a true margin of safety. And a true margin of safety is one that can be demonstrated by figures, by persuasive reasoning, and by reference to a body of actual experience."
The main thrust of the book is a lost chapter regarding how to value a stock that is growing. The author produced the the lost chapter in this particular book. For enterprising readers this can also be found in the 4th edition of Security Analysis. It wasn't include in the 5th edition. Graham scholars will also likely voice their skepticism how much this chapter was written by Graham and how much was written by Sidney Cottle (Graham wrote the first three editions of Security Analysis by himself while Dodd helped with note-taking). That being said, there is a lot to like in the book. It was written for the general reader so the analysis doesn't go into too much depth but, like Graham, that is also the strength of the book, meaning, everything is include in this book for the enterprising investor to analyze a company. This does assume the reader has a good grasp of accounting and other subjects but it is quiet useful for simple companies.
I appreciated the fact the author points out the flaws of the sharpe ratio (sharpe assumes stationary variance) another is the difficulty of estimating interest rates. For example, from 65-82 interest rates went up dramatically, thus, if someone assumed stable interest rates through that time period (which was fairly close from the 50's to mid 60's) that would have resulted in overestimating the return (higher interest rate will reduce the rate of return) or from 82-2000 interest rates went down dramatically, this would have resulted in underestimating returns if a model included higher rates.
Graham liked to keep things simple. For example, if there is a 90% probability of 5 variables, the probability of getting that problem correct is about 59%. If a problem has 9 variables and they all have a 90% probability, the probability of that problem working out is about 38%. Buffett used an example similar to that at an annual meeting once and I never forgot it. It is easy in this media rich world to be "led astray"-as brother Malcom would say-from charlatans and salesman talking about high growth rates that simply fail to pass the smell test once simple arithmetic or probability is employed. If one wants to argue with growth rates that are too high, they should go into sales and not into security analysis, but I digress. Graham believed anything higher than elementary algebra to ascertain the value of a company is not only inefficient but dangerous, meaning, it invites a false precision. Indeed, this actually a large reason for the most recent bubble we had that popped in 2008, although, to be fair, bubbles will happen without models using higher mathematics and assuming a false precision. This can be observed from a cursory reading of financial history going back to tulip mania in the 1600's.
One formula that is used in the book is Intrinsic Value= 8.5 plus (2 times g) times earnings per share.. For example, assume that company A has earnings per share of 1 dollar, further assume that the growth rate is 10% and the time to model this is 7 years then in 7 years earnings per share is 2 dollars. We would multiply 2 times 10 or 20 then add 8.5 or 28.5 for the result. IV in this case would be 20x2 equals 40 plus 8.5 equals 48.5. Of course, the lower the growth rate, the lower the p/e multiple. This would obviously not be used in isolation but it could be helpful after doing a more in depth analysis and using it as one additional step. Graham was brilliant and could have employed esoteric math (Columbia asked him to be a Professor in the Maths department when he was in his early 20's) but he simply thought this wasn't useful or accurate. After all, if someone was looking at buying a coffee shop or apartment down the street, if they used several spreadsheets and consulted with a Phd in maths, that wouldn't help in determining the value of the enterprise, it may even hurt.
This was an enjoyable read. I also like the chapter on competitive advantage. I thought this book might try and completely twist Graham and take him completely out of context and although there is a little bit of that due to the emphasis on the formula above, there is enough in the book to bring it almost back into balance and give the reader a reasonable exposure to Graham along with some chapters that was out of Graham's baliwick (such as the chapter on competitive advantage which was a joy to read as well).
February 10, 2025
اگر به مباحث سرمایه گذاری در سهام علاقمند هستید به شدت توصیه میشه.
کتاب درباره تفاوت و عملکرد سهام ارزشی و رشدی است از دیدگاه بنجامین گراهام است.
کتاب درباره تفاوت و عملکرد سهام ارزشی و رشدی است از دیدگاه بنجامین گراهام است.
January 10, 2023
เนื่อหาไม่ซับซ้อน แต่ยิ่งอ่านยิ่งคิดกลับได้รู้อะไรมากกว่าที่เคยเข้าใจ
July 24, 2020
One of the best books written on stock valuation - specifically for growth stocks. Based on Bejamin’s investment strategy, Frederick has done a great job to illustrate it that has been omitted from next editions of Ben’s book. Definite read for those who wants to be investment professionals or have time to analyse stocks on their own.
Really enjoyed it.
Really enjoyed it.
July 27, 2023
A useful biography that I expect to read again in a few years. I'm comfortable finding good values today, but I'm not comfortable using estimates to value growth stocks for the future yet.
November 6, 2012
Arguably one of the better books on investing and the author makes a clear attempt to highlight the fact that value and growth investing are not necessarily mutually exclusive mindsets. I appreciate the author's thoroughness and use of legitimate examples. No investing book is perfect and for investors looking for the next best screen or a book on stock-picking, then this book may not work. For investors that like to think about how to think about stocks and valuation, this is an excellent block to your library.
March 17, 2016
There is nothing novel in the book except for Chapter 3 on growth stock valuations - which I think again is questionable. There are few ideas on companies having moat that you could possibly pick from the book.
March 9, 2014
useful. so the dean of value investing did acknowledge the role of finding growth stocks later in life.
February 3, 2016
Simply superb! I havent seen a more useful book in my life. Powerful thoughts said even more powerfully. Must read if you plan to make money in life.
Displaying 1 - 9 of 9 reviews