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Graham & Dodd Security Analysis, authored by professors Benjamin Graham and David Dodd of Columbia Business School, laid the intellectual foundation for what would later be called value investing. The work was first published in 1934, following unprecedented losses on Wall Street. In summing up lessons learned, Graham and Dodd chided Wall Street for its myopic focus on a company’s reported earnings per share, and were particularly harsh on the favored “earnings trends.” They encouraged investors to take an entirely different approach by gauging the rough value of the operating business that lay behind the security. Graham and Dodd enumerated multiple actual examples of the market’s tendency to irrationally under-value certain out-of-favor securities. They saw this tendency as an opportunity for the savvy.
At bottom, Security Analysis stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements, make purchases when the market inevitably under-prices some of them, earn a satisfactory return, and never be in real danger of permanent loss. Warren Buffett, the only student in Graham’s investment seminar to earn an A+, made billions of dollars by methodically and rationally implementing the tenets of Graham and Dodd’s book.
Security Analysis is still used as a textbook at Columbia. Security Analysis also represents the genesis of financial analysis and fundamental analysis. However, in the 1970s Graham stopped advocating a careful use of the techniques described in his text in selecting individidual stocks, citing the extensive efforts and costs required to generate superior returns in a modern efficient market. Instead, Graham later suggested the use of one or two simple criteria to the investor’s entire portfolio, focusing on results of the group rather than on individual securities. (Wikipedia Jan 2010)
The long road to recovery
By John Schroy, on June 1st, 2010 | 
Over the years, I’ve read quite a number of books on investment. Not all are worth the effort.
Among those that I consider valuable, I would cite Graham & Dodd’s “Security Analysis”, “Fooled by Randomness” by Nassim Nicholas Taleb, Wu and Zakon’s “Elements of Investments”, and “The Great Depression: A Diary” by Benjamin Roth. The latter brings a message that is especially relevant in these trying times — a warning that early optimists regarding recovery are often as badly burnt as those who failed to foresee the original crisis.
Fat-Finger Thursday:
By John Schroy, on May 10th, 2010 | 
On May 6, 2010, the Dow Jones Stock Index, at about 2:30 PM, fell almost one thousand points, before recovering when traders discovered that there was no real news justifying the crash in prices. The day will forever be know as ‘Fat-Finger Thursday’, in remembrance of the first inclination to blame the crash on supposed mistaken data entry by some trader, somewhere. Later, the authorities came out and declared that there was no “fat finger”, but that the cause for the anomaly was unknown and under investigation.
Post Modern Security Analysis
By John Schroy, on August 26th, 2009 | 
Modern capital markets have become so complex that security analysis methods of the 1930s are no longer adequate.
Excessive, daunting complexity is the reason that security analysts must move now beyond Graham & Dodd.
Complexity is not only in financial information, but in collateral issues such as institutional operations, the interaction of foreign and domestic taxation, and structural risks.
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