Father of Securities Analysis: Benjamin Graham _BenjaminGraham_ by fdjerue7eeu


									Father of Securities Analysis: Benjamin Graham (BenjaminGraham)
The stock market has always been regarded as a gathering place for the
elite, Wall Street is the measure of a man of wisdom and courage of the
decisive place. Benjamin Graham as a great master, his financial analysis
theories and ideas in the investment field had a very great shock,
affecting almost three generations of major investors, is now active in
the tens of millions of Wall Street investment managers are Graham's
followers call themselves, he enjoys the "Wall Street
Godfather" in the world.
First joined the stock market
Benjamin Graham in May 1894 9 sunrise in London. When he was a baby,
along with the United States, Gold Rush, with his parents moved to New
York. Graham's early education was completed secondary school in
Brooklyn. High School in Brooklyn, he not only of literature, history has
a strong interest in more on the mathematics of extraordinary love. He
likes to show mathematics in the strict logic and inevitable outcome, but
the reason for this logic to the blind and the impulse for the
characteristics of financial investment markets, will always be the most

After graduating from Brooklyn high school, Graham was admitted to
Columbia University for further studies. While studying at Columbia
University during the period he had the pressure of forced existence to
living and working to pay the money for tuition, but comfortable with all
the ups and downs of life, in a group of excellent instructors, deeper
head them into the books and knowledge management, knowledge and
continuing to draw nutrients from. In 1914, Graham to honor graduates and
second class results from the Columbia University graduate. However, in
order to improve the economic situation of the family, Graham needs to
find a more generous reward work, for which he gave up school to teach
for the opportunity to strongly recommend in Cabel principals, began into
Wall Street.

The summer of 1914, Graham came to Newberg for a company to do Lauber
Henderson, a member of a message, is mainly responsible for the bond and
stock prices posted on the board, weekly 12 U.S. dollars. Although this
work is professional and other New York Stock Exchange one of the lowest,
but the future of Wall Street's godfather is thus began his legendary
Wall Street investment life.

Graham soon proved to the company of his ability. In less than three
months, he was promoted to the authors of the study. Because of his
literary training adequate and rigorous scientific thinking, and profound
knowledge, he soon formed his own brief and logical style, unmatched
stage in a time of Wall Street securities analysis.

Newberg is also a one Lauber company to Graham Henderson provides a good
practice and training in place, only to master the future of the stock
became fully familiar with the securities industry a set of business
management knowledge, understanding procedures, including securities
trading, market analysis, purchasing and shipping time, the market
environment and stock market people, etc., the actual method of
operation. Although Graham has not received formal business school
education, but from first hand experience of real money, far more than
the textbook description of a more profound and powerful that to his
future theoretical exploration in the stock, laid a great solid

Newberg, owner of careful observation, Graham who made the enormous size
of the potential and talent. Soon, Graham has been promoted to securities
analysts. Graham promoted to securities analysts is the real beginning of
a lifetime career.

At the time, people are accustomed to Dow Theory, and the Dow Jones index
of stock market, while a single stock, securities analysis is stuck in
the more primitive, rough stage, but ordinary investors usually tend to
invest in bonds of investment, For stock investments, investors generally
considered to be too speculative, too risky, it is difficult to grasp.
The reason to make such choices result in investors, partly because bonds
have a stable income, and once bankruptcy liquidation of the company
issuing bonds, bondholders have priority over shareholders the right to
settle the purchase of bonds significantly higher than the safety factor
to buy stocks; On the other hand is mainly because the general public
only in general terms the company financial statements to investors is
difficult to understand the true financial position. Graham by those
listed stocks, bonds, the company's financial statements, and the assets
of the company research that showed profits of listed companies in order
to conceal or to escape responsibility for cleanup in the claims, often
do everything possible to conceal assets, the company disclosed in
financial statements to an underestimation of the assets after, and this
approach has led to a direct consequence of the Gupiao reflected in the
stock market prices often well below its Shijijiazhi. Manipulator to
control the release of information by the stock price ups and downs, the
stock market is almost entirely in a state of disorder and chaos run.

Graham decided to take the company to conceal a large number of assets
surgery. He started from the listed company itself, government
administration units, news, insiders and other channels to collect
information on these collected data for research analysis, search for
people who have substantial hidden assets of the company.

September 1915, Graham noted that a company with more than copper mining
development company equity - reported Heim Columbia company, was trading
at 68.88 U.S. dollars per share. Graham noted that the company will be
dissolved in the news, through various channels to collect information on
this company, this company stock price for the mineral and a detailed
technical analysis, found that the company still is not large known
hidden assets, by calculating, Graham accurately determine the market
value of the company's stock value and its actual assets, there is a huge
price difference between the space. He believes that investment in the
company's stock will bring good returns, a large number of
recommendations to buy the stock, Mr. Neuberger. Mr. Neuberger accepted
Graham's proposal. When in January 1917 announced the dissolution of the
Colombian newspaper Heim, the Newberg A Lauber a Henderson company earned
from this sale of hundreds of thousands of dollars in profits, its return
on investment as high as 18.53 percent.
Graham as a securities analyst, the accuracy of their judgments on
investing in stocks on Wall Street began to have some small fame, he
decided to kill a small scale in the Wall Street.

He should be a number of relatives and invited friends started trying to
do for some private investment. Initially, Graham operated by the private
investment did receive a good income, but the year after the "Sa
increase tire incident" gave Graham brought a record hit.

Prevailing at that time a kind of secret on Wall Street will buy publicly
traded shares, wait until after listing operations from arbitrage
practices. Graham, a friend, said to him, Saddam will increase the tire
company's stock publicly traded. Graham due for careful analysis, we
combined a number of colleagues, friends, purchased in batches Sa
increase tire stock. However, these stock options is simply a market
manipulation, behind the scene wild speculation in the stock after the
sudden sell-off, with the result, including Graham, including a large
number of investors are ruthless stuck, but not listed on the stock

"Sa increase tire incident 'to Graham on a vivid lesson to Graham on
Wall Street have a more profound understanding of nature, while Graham
also obtained from two experiences: One can not credulity so-called
"inside information", the second is to artificially manipulate
the market and maintain a high degree of caution. These have prompted
Graham to mature.

In 1920, Graham was promoted to Newberg has a one Lauber Henderson's
partner. He continued to accumulate more experience through practice. As
one after another of his brilliant victory, his investments maturing
technology and investment philosophy.

In Graham, speculation is not a good investment, because speculation is
based on information above, the risk is very high. When the share price
has risen to the top of high-end, the hard to say which stocks did not
fall risk, even blue chip stocks are no exception. Therefore, the strict
sense, based on the fact that their own investment and speculation based
on information, the risks implied in both is different. If a company is
really operating well, its stock will be contained in the investment risk
is small, its future profitability is definitely high. At the same time,
Graham also believes that the risk in the stock market is always there,
no risk there would be no stock market, any investor to be successful,
need to be relying on proven techniques to avoid risks and thus profit.
Graham will be the use of options transactions to avoid investment risks,
for his design of a set of system portfolio insurance programs, such as
when a stock bull, only a small amount to spend to buy it to be to buy
options, when to be in the future revaluation then agreed to buy low
price; when a stock put, spend a little amount of buy to sell their
options to be so in the future to fall after the agreed price sell high.
Options trading using its leverage, can's big, so no matter how the
market trends, have the potential for profitable investment. Even if the
price of securities to determine errors, lost most of its purchase option
only when a small input of funds and thus will not plummet.
Graham's technique to avoid risks for those who always worry about their
investments because of the unpredictable stock market sorely lost the
investors is no doubt a surefire plan. Graham on Wall Street and
therefore establish its own unique reputation.

In early 1923, Graham left the Newberg A Lauber a Henderson company,
decided to live on their own. He established the Grange private funds,
fund size of 50 million. Graham decided on this basis, grand plans. He
selected the first target is the famous U.S. chemical giant: DuPont.

In 1920, the U.S. arms giant General Motors, DuPont is temporarily unable
to repay bank loans caught in financial difficulties, through a long-
planned merger battle, the ultimate merger of the General Motors
Corporation. DuPont GM merger the two companies formed the situation of
cross-shareholdings. To August 1923 before and after, due to World War
II, the U.S. economy into recovery, DuPont lost profits from the arms,
stock prices plummeted, share price remained at 297.85 U.S. dollars only
about; and General Motors companies large car market demand growth and
profits soared, up to 385 U.S. dollars per share.

Graham noted that DuPont and General Motors stock a huge gap between.
After analysis, he thought as DuPont owns more than 38% of common shares,
and this share is growing, the market price at this stage the gap between
the two stocks is a mistake, an error caused by the stock market sooner
or later will the stock market to correct itself, the market can not long
ignore the obvious mistakes, once when this error is corrected, that is,
the investor profits when the vision.

Graham is not only a large company to buy Du Pont stock, but more to have
to sell GM stock. In this way, he would Yindu Bang shares rose and
General Motors shares fall two-way benefit. Two weeks later, the market
share quickly the gap between the two companies made a correct, DuPont
shares soared, rising to 365.89 U.S. dollars per share, while GM shares
dropped, dropped to 370 U.S. dollars per share about. Graham quick
profits, not eaten GM shares he sold the difference between their
individual return on investment as high as 23%. This Grange fund the size
of the shareholders are earning large sums of money.

Grange fund one and a half, its return on investment as high as 100%, far
higher than the average share price rise 79% increase, but because
shareholders and Graham in the dividend on the differences of opinion,
Grange Fund final forced to dissolve in the end. It has kept the Graham
unexpectedly met his best gold partner - ½ÜÂÞķŦÂü. Newman has
exceptional management skills, handling a variety of complex matters
appear from its capability, making Graham could release more energy to
focus on securities analysis and investment strategies.
"Portfolio analysis" of the essence
Graham was brutally hit on Wall Street and hard period of support, it was
his theory and investment securities maturing period of operation skills.
The end of 1934, Graham has finally completed his long-awaited
"Portfolio Analysis" This epoch-making book, and thus laid a
security analysis of his master and the "Wall Street godfather"
of immortality status.
In Graham's "Portfolio Analysis" published before the Dow
Theory is the first to propose the stock market investment stock market
technical analysis theory. Its core is how the stock price or stock index
to the historical trajectory analysis and prediction of its future
direction and trends. Dow Theory will be divided into the dominant trend
of the stock market fluctuations, secondary movements and daily
fluctuations in three types. It is considered that, given the daily
fluctuations in the secondary movement and a strong sense of random color
is difficult to forecast and capture, and duration are not very long to
grasp the trend of the stock market movement led to investors becomes
more important. Dow Theory described in detail the stock market bull and
bear market characteristics and how to determine movement led the stock
market trend. Meanwhile, the Dow Theory also indicates the trend reversed
when the stock market must go through three processes: first, a prolonged
or substantial stock market correction, while clearly reflected in the
Dow Jones industrial average and the transport index; followed the stock
market rebound, the index of which one or two indices also failed to
exceed the historical level before the amendment; once again the stock
market correction, the two indices of the amendment before the reduction
was greater in one of the level which reached a new low. Therefore, Dow
theory is essentially a movement to grasp the overall trend of the stock
market theory.

Graham writing in the "Portfolio Analysis" at the same time,
·ÆÀûÆÕ·ÑЪÌá out Fisher theory. Fisher theory that increasing a company's
intrinsic value to two factors: First, the company's growth prospects,
and second, the company's management. Investors before investing in the
company, the company must be fully investigated. Fisher considered in
determining whether the company's development prospects, not too much
emphasis on the company's 2012 annual growth rate in sales, but from his
many years of operating conditions to determine; should also examine
whether the company is committed to maintaining its low cost, so profit
growth as sales growth simultaneously, and the company's future does not
require equity financing in the context of growth capacity. In the study
the company's management capacity, managers should pay attention to
whether there is a viable policy, long-term interests of short-term
interests of the subject; management's integrity and honesty, can deal
with good and working relationship between employees; and the company
Zhisuo Yi Qubie with the industry's business or other management
features. Fisher theory holds that the ability to buy additional shares
of its long-term intrinsic value.

Graham's "securities analysis" and the Dow theory and the
theory of Fisher's focus is totally different, he was involved in a far
no one has set foot in his field.

First of all, Graham unified and clear the "investment" is
defined, the distinction between investment and speculation. Prior to
this, investment is a multi-meaning words. Some people think that the
higher the security purchased securities such as bonds for investment,
net present value of the purchase price below the stock's behavior is
speculative. The Graham believes that motivation more than the external
behavior to determine the purchase of securities is for investment or
speculation. Borrowing to buy securities and hopes that the decision-
making in the short term regardless of its profits to buy stocks or bonds
are speculative. In the "Portfolio Analysis" book, he proposed
his own definition: "Investment is through careful analysis and
study, there is hope, and can get a guaranteed income behavior. Does not
meet these conditions is called a speculative behavior . "

Graham believes that to be considered for an investment in securities,
the basic payment must have a degree of security and satisfaction rate of
return. Of course, the so-called safe does not mean absolute security,
but to invest in reasonable condition would not have a loss. The event of
unusual or unexpected emergencies will also make security a higher bond
to become an instant paper. And satisfactory returns including dividends
or interest income not only price but also value-added. Graham in
particular that the so-called "satisfaction" is a subjective
term, so long as investors do wise, and within the limits defined in the
investment, return on investment can be any number, even if very low,
also known as a "satisfied The. " Judge a person or
speculators, investors, the key is his motives.

But for the poor performance of the bond market at that time, Graham's
definition of the investment may be ignored. 1929 to 1932 in just four
years, the Dow Jones Bond Index fell to 6578 points from 97.70 points, to
buy bonds because many people bankrupt. Bonds in people's minds is no
longer simply regarded as a pure investment, and people began to re-
examine the original stock and bond investment and speculation in the
superficial nature of knowledge, Graham made a timely manner the
definition of investment and speculation, helped many people to clarify
their understanding.

Graham's "portfolio analysis" of the book, after the
distinction between investment and speculation, made a second
contribution was to raise the number of ordinary shares of investment
analysis methods, to solve the urgent problems of investors so that
investors can correctly judge the value of a stock in order to decide on
a stock investment choices. In the "Portfolio Analysis" before
publication, there is no stock selection model to any measure, Graham can
be called a quantitative method to the first person selecting stocks.

Wall Street stock market in 1929, before the railway company of its
listed companies in the industry, while industrial and utility companies
all listed stocks in the share of small banks and insurance companies,
speculators, like the industry has not yet listed. In Graham, the railway
industry, because the actual value of the assets listed companies as a
support, and most of them trading at close to face value, which has
investment value.

20 years in the late 19th century, Wall Street stock market along with
the U.S. state of economic prosperity into the bull market, both types of
listed companies or stock issuance Liangjun increased substantially.
Unprecedented enthusiasm of investors, but most investment is invested in
real estate. Although the real estate company has Akimori a while, but
then Australia was a series of real estate, bankruptcy, commercial banks
and investment banks have failed to bring enough awareness to be
concerned with risk, but continues to recommend a real estate company
stock. Real estate investment to stimulate the financial and corporate
investment activities, and then continue to stir up investor optimism. As
Graham pointed out, the optimism out of control will lead to madness, and
mad as a main feature is that it can not absorb the lessons of history.

In the "Portfolio Analysis," a book, Ge Leie thumb out of the
stock market crash, there are three reasons: (-) transaction brokerage
firms and institutional investors on stock manipulation. In order to
control some ups and downs of stocks, brokers will be released some news
every day, telling customers to buy or sell a stock would be a wise
choice how to make customers blindly into the trap they set. (B)
borrowing to buy shares of those financial policies. 20 years, the stock
market speculators can buy shares from banks to obtain loans, from 1921
to 1929, its loans for the purchase of shares rose by the one billion
U.S. dollars to 85 billion. As the loans are to support the stock market,
and once the stock market crash occurs, everything like dominoes all
fall. Until 1932, the United States enacted the "Securities
Act", the effective protection of the individual investors from
fraud by brokers, by purchase of securities margin gradually reduced
until the situation. (C) over-optimism. One reason is the three reasons
that the most fundamental, is not beyond the control through legislation.

1929 stock market crash occurred is not trying to masquerade as
speculative investments, but became a speculative investment. Ge Leie
thumb out, the historic optimism is unquenchable, investors are often
vulnerable to the stock market encouraged by the continuing bull market,
then began to look forward to a lasting era of prosperity and investment,
thus losing the value of the stock rational judgments on pursuing wind.
Over-optimistic in this market, the stock market can value at any price,
people do not consider the mathematical expectation, it is not because of
this very reason, make the investment and speculative blur the

When people suffer from the enormous impact of stock market crash, the
purchase of the stock is considered speculative again, people hate even
the curse equity investments. Just as the economic recovery, people's
investment philosophy before they change their state of mind change of
ten confidence in stock investment. Graham in 1949 to 1951 wrote,
"Portfolio Analysis" third edition, the recognized stock
investors have become an important part of the portfolio.

Stock market crash in 1929 after 20 years, many academics and investment
analysts on the stock investment research and analysis methods. Graham's
many years of research and analysis in accordance with their proposed
equity investment of three methods: cross-sectional method, the safety
margin is expected to law and law.

Cross-sectional method the modern equivalent of index investment law.
Graham believes that the portfolio should be diversified alternative to
invest in individual stocks. That the average investor to buy Dow Jones
Industrial Index of 30 companies included in the matching shares, the
profit and the 30 companies will be consistent.
Expected method is divided into short-term growth stock investment laws
and investment laws two. The so-called short-term investment method is
investor in the 6 months to a year choose the most profitable prospects
within the company to invest in, make a profit. Wall Street takes a lot
of energy to predict the company's operating performance, including
sales, costs, profits, etc., but Graham believes that the shortcomings of
this approach is that the company's sales and earnings are constantly
changing, and very easy short-term operating performance is expected to
immediately reflect to the stock price, causing the stock price
volatility. The value of an investment is not that it earns this month or
next month how many, nor the next quarter's sales growth of what will
happen, but rather it is the long term to give investors what return. It
is clear that the decision-making based on short-term information is
often superficial and temporary. However, changes in Wall Street's
emphasis on performance and trading volume, so short-term investments to
become a more dominant Wall Street investment strategy. The so-called
growth stock investing is an investor's perspective of long-term sales
and profit growth options are higher than corporate average of Gongsi of
stocks as investments, in order to Qihuo De long ÊÕÒæ. Each company has a
so-called life-cycle profits. In the early stage of development, the
company's sales began to accelerate growth and profits; the rapid
expansion phase, continued growth in sales and profits increased
dramatically; in a stable growth phase, the growth rate of sales and
profits began to decline; to the final stage - - recession decline stage,
sales have fallen sharply, profits continued to decrease significantly.
Graham believes that the use of growth stock investors could be faced
with two challenges: how to distinguish a company at some stage of their
life cycle. Because the company profits at every stage of the life cycle
is a period of time, but time does not limit the length of a very
obvious, which enable investors to carry out accurate identification
difficult. If investors choose a stage of rapid expansion at the company,
he may find the company's success is only temporary, because the company
stand the test of time is not long, the profit can not be sustained; If
investors choose a stable growth stage companies in Perhaps he will find
that it has in the later stage of stable growth, will soon fall into a
recession stage, and so on. The second is how to determine whether the
current stock price reflects the company's growth potential. Investors
select a growth stock ready to invest, then he should buy at what price
is most reasonable? Prior to his investment if the company's stock has
been under everyone's esteem rose to high price, then the stock is also
has investment value? In Graham, the answer is not exactly determined.
Graham for further pointed out that under such circumstances, if the
analyst of a certain company's future growth hold optimistic attitude,
and consider the company's Gupiaojiaru Touzi Zugezhongqu, then he Xuanze
You two kinds: one kind is in the market downturn to buy the stock; the
other is when the stock market price is lower than the intrinsic value of
its bid. Choose to buy shares of these two methods is mainly for stock
margin of safety.

But Graham also pointed out that the investment by the first approach,
investors will be caught in some of the difficulties. First, the downturn
in the market easily induce investors to buy shares only model or formula
to predict the level of stock prices, but ignored the impact of stock
prices of other important factors, difficult to accurately predict the
final stock price movements. Second, the period when the stock price is
stable, investors can only wait for the arrival of the market downturn,
but is likely to miss the many investment opportunities. Therefore, the
Graham recommends investors invest in the best manner by the second.
Investors should discard the market price level, focusing on the analysis
of the intrinsic value of individual stocks to find those prices by the
market to invest in undervalued stocks. The investment strategy to make
this effective, investors need to have some method or technology to
determine whether the value of the stock is undervalued. This introduces
a "margin of safety" concept, which is used to assess whether
it is worthwhile to buy some stocks way margin of safety law.

The so-called margin of safety law means the investors through the
company's intrinsic value estimates to compare their intrinsic value and
the difference between the stock price when the difference between a
certain degree (ie, margin of safety) can select the stock investment.
Obviously, the marginal method for application security investment,
investors need to have some estimate the intrinsic value of the company's
technology. Graham that the company's intrinsic value is the company's
assets, income, profits and proceeds of any future expectations and other
factors, the most important factor is the company's future profitability.
Because these factors are quantifiable, and therefore a company's
intrinsic value can be a model to be measured, instant multiplied by the
expected return on the company's future capital of an appropriate factor
to estimate. The capital of the stability factor by the company's
profits, assets, dividend policy and financial stability and other

Graham believes that the intrinsic value by investors as the future
economic situation of the company limited by imprecise calculation, the
result could easily be a number of potential future negative factors. The
sales, pricing and cost projections difficult also more complex
calculation of intrinsic value. But these are not completely negate the
margin of safety laws, The empirical study found that safety margin
method can be successfully applied to the following three areas: First,
the marginal method used for security and stability of securities such as
bonds and preferred stock so good; 2 is the margin of safety law can be
used to make comparative analysis; third margin of safety law can be used
to select stocks, especially in the company's stock price far below its
intrinsic value.

However, Graham also pointed out that intrinsic value can not be simply
seen as total assets minus total liabilities, or net assets. In addition
to the intrinsic value because the company, including its net assets
include those assets can generate future earnings. In fact, investors do
not calculate the exact value of the intrinsic value of the company, just
a rough estimate the value of stock market value compared to determine
whether the company's stock has sufficient margin of safety, whether as
an investment.

Although more emphasis on quantitative analysis of Graham, but he does
not deny the importance of quality analysis. Graham believes that
financial analysis is not an exact subject. Although the number of stalls
for some factors, including assets, liabilities, profits, dividends, etc.
The quantitative analysis of the intrinsic value of the company signed
estimate necessary, but difficult to analyze the quality of some factors,
such as the company's operating capacity and the nature of the company is
also the company's internal estimates essential value. Lack of analysis
of these quality factors, often result in huge deviations estimation
results'. Which affect investors make the right investment decisions. Too
strong, but Graham also expressed concern about information quality
factors. Graham believes that too much emphasis on that crab as investors
pushed to ascertain the quality factors, will increase the potential
disappointment. Factors on the quality of the excessive optimism that
investors in the company's intrinsic value estimated using a higher
capitalization factor, which prompted investors to buy all @ potential
high-risk securities.

In Graham, the majority of the company's intrinsic value rather than the
factors derived from the quality of quantifiable factors. Quality factors
in the company's intrinsic value in only a small part. If the majority of
the company's intrinsic value derived from the management ability,
business nature and optimistic growth rate, then almost no margin of
safety to speak of, only most of the company's intrinsic value derived
from quantifiable factors, investors can be risk limited.

Graham said that as a successful investor should follow the principle of
two investments: one non-loss, second, do not forget the first principle.
According to the principles of these two investments, Graham proposed two
secure stock-picking method. The first method is less than the company's
stock picking 2 / 3 the price of net asset value of shares bought, the
second method is to buy shares of companies with low price-earnings
ratio. Of course, the premise of the two stock selection methods is that
these stocks must have a certain margin of safety. Graham further
explained that the company for less than 2 / 3 the price of net assets to
buy company stock, is a stock portfolio rather than a single stock as a
basis for such shares in the stock market downturn of the more common,
rising in the market when rare. As the first method under great
constraints, Graham will be the second of their research focused on stock
selection method. However, companies with less than 2 / 3 the price of
net assets to buy stocks and buy stocks with low price-earnings ratio by
the two methods selected the stocks in many cases overlap.

Graham's margin of safety theory is based on certain assumptions based
on. Graham believes that the stock was the result of unreasonable prices
is largely due to human emotions of fear and greed. Extremely optimistic,
the greed make the stock price is higher than its intrinsic value,
creating an overestimation of the market; extreme pessimism, the fear of
it makes the stock price below its intrinsic value, and then form an
underestimated market. Investors is the lack of efficiency of the market
correction in profit. In the face of stock market investors must be
rational. Graham drew the investors do not focus on the market the plane,
but to put the stock behind the company, simply because the market is a
rational and emotional contaminate its performance is often wrong, and
investment tips is that when the price is far below the intrinsic value
of investment, waiting for the market to correct their mistakes. When the
market corrected the error is when the investor profits.
Graham in "Portfolio Analysis," a book also refuted a number of
investors in the dividend distribution policy on the mistake. Some
investors believe that giving dividends but yes the value of a stock are
Xianyou obtain after dilution to a kind of illusion, but Graham refused
to grant that if the dividend Er Gong Si Bao Liu surplus blind, the once
chaotic Yong Zhe Xie earnings, investors will no interest. Companies
should be reserved for its future development and funding requirements,
will be a surplus of cash dividends or capital payments of fund into
capital's out to ensure the interests of investors. If investors receive
the cash dividend, he can freely use this surplus, but also well-run when
he felt the company bought the shares; if investors receive the stock
dividend, he can either keep the stock waiting to earn dividends , also
choose to sell the stock immediately fulfilled. No matter what kind of
dividend policy, all investors will have greater flexibility and better
ensure the safety of their interest income.

"Portfolio Analysis" method of measurement set out and make
investors much less valuation method blind, an increase of more rational
elements. This book was published, shocked the U.S. and Wall Street
investors, while, the book has become the financial sector and the
investment community required reading books. Since then, Graham has
established his "Wall Street godfather" of immortality status.
How to Understand the Stock Market
Graham has won great reputation in the same time, he is responsible for
the operation of Graham Newman company entered a new era.

1936, implemented a   few years of Roosevelt's New Deal starting to prove
too weak to aid the   state, Wall Street also will again downturn. For most
investors, about to   face another round of severe tests, but this time
Graham's investment   strategies and investment techniques are quite
mature, and operate   more handy.

Graham is not the same as other investors into a pessimistic, but instead
make full use of investment analysis methods to search for stock worth
investing in the stock. He did not attach importance to the performance
of individual stocks in the past to predict future stock market movements
or the stocks future prospects, and the main stock market value is lower
than its intrinsic value as a criterion, especially those less than its
liquidation value of the stock is his concern focus. Graham downturn in
the stock market the company for the Graham Newman a lot of cheap stocks
to buy one, and Graham, as before the 1929 stock market crash as
investors are taking on the various hedging measures, the different He is
the more comprehensive asset protection.

Investors generally believe that, in order to avoid investment risks, the
best withdrawal from the stock market, liquidate out, but Graham is not
only possible that the best way. Graham one way to diversify investment
risk aversion, on the other hand, investment in preferred stock,
preferred stock and then use the financing to low interest rates, while
dividends of around Semis, while the common stock dividend does not
guarantee to achieve the purpose of avoiding risk.

Graham's of these investment strategies and investment techniques not
only demonstrated a continued downturn in the loss avoidance, but also
demonstrated in Ruoshi in profitability. Reversal in the stock market
began when Graham purchased the stock market downturn a large number of
the low price this was a great return. In between 1936 to 1941, although
the stock market in general, showed a downward trend, but Graham Newman
in this period the average annual investment return rate as high as Wei
Wei. 8%, much higher than the same period of the standard S & P 90
stock, while hundred of the standard S & P stock average lost 0.6%.

1936, to undertake his "portfolio analysis", Graham has
published his second book "Interpretation of Financial
Statements." Reveal the company's financial statements are the
primary means of financial information, the company's financial
condition, results of operations and cash flows are provided through the
financial statements to. How to analyze financial statements to evaluate
the company's financial condition, future earnings and other securities
to investors to avoid investment risk decision-making and trading of
great importance. Graham tried to guide investors through the book, how
accurate. Effectively read the Company's financial statements.

Correctly interpret the company's financial statements will enable
investors to better understand Graham's value approach. Graham that the
stock price below its intrinsic value buy, sell higher than its intrinsic
value. To accurately determine the intrinsic value of the company must
staff from the company's financial statements, the company's assets,
liabilities, working capital, revenues, profits and return on investment
net profit-sales ratio, sales growth rate of such analysis.
"Interpretation of Financial Statements Pei help ordinary investors
to better grasp the investment target's financial position and operating

Three of the 40 century is the era of high-yield Graham's book. Following
the "Interpretation of Financial Statements", the Graham again
in 1942 and launched another one of his masterpiece has aroused great
repercussion "smart investors." Although this book was written
for the average investor, but the financial community with deep wisdom of
light by the dumping of the book. It once again reinforces Graham's
status as a great master.

Graham In "Smart Investors> a book once again clear that the
essential difference between investment and speculation: investment is
built on sensitive and quantitative analysis, based on the speculation is
based on the idea of sudden or speculation above. The key to the two
different views on the stock price, investors seek to buy shares at
reasonable prices, and speculators trying to profit from ups and downs in
stock prices. As a smart investor should fully understand this. In fact,
the biggest enemy is not the stock market investors, but his own. If
investors can not invest the time to master their emotions swayed by
market sentiment, even though he has superb analytical skills, but also
difficult to obtain a greater return on investment.

In response, Graham has described two of the fable to the image of the
stock market that is outside a "Mr. Market" from time to time
to illustrate the folly of forecasting stock market volatility.
Suppose you and "Mr. Market" is a private sector partner. Every
day, "Mr. Market" will quote a price, make this the price he is
willing to buy from you in the hands of some stock or sell stock in his
hand you some. Although the stock you hold a partnership with a stable
economic characteristics, but "Mr. Market" is not the mood and
offer stability. Some days, "Mr. Market" sentiment, only see
the light one, then he will give the stock a partnership reported a very
high price; other day, "Mr. Market" depression, only see the
difficulties , then he will give the stock a partnership quoted very low
prices. In addition, 'Mr. Market, "there is a lovely feature, never
mind that he was cold. If" Mr. Market "Today's offer made no
response, then he will come tomorrow, bringing his new offer. Gray Graham
told investors in this particular environment, we must maintain the good
sense and control, and "Mr. Market" to maintain a certain
distance. When "Mr. Market" offer makes sense, investors can
use He; if his performance is not normal, investors can ignore him or use
him, must not be under his control, or else.

To illustrate the blind investment behavior of investors, Graham spoke
another parable, "lemmings investment." When an oil explorer
ready to enter heaven, when St. Peter stopped him and told him a very bad
message: "Although you do have qualified to enter heaven, but
allocated to the oil industry has been full of a place to live, I can not
go in your placement. "listening to the oil explorer, after a
moment, on the right Shengbideti a request:" Can I go with those
people who live in heaven saying a word? "St. Peter agreed to his
request. As a result, the oil explorer on the front of the people in
heaven shouting: "In the discovery of oil in the hell!" Carter,
in heaven everyone flocked ran hell. St. Peter was surprised to see such
a situation, so he asked the oil explorer to heaven live. But the oil
explorer hesitated, said: "No, I think I join with those who go to
hell." Graham told investors through this parable not to blindly
follow the trend. Stock market, some drastic changes often occur in many
cases is due to investors blindly follow the trend of behavior, rather
than the company's own earnings changes. Once the stock market on rumors
appeared, many investors in the fast speculation, without confirmation
prior to the blindly buy or sell based on Zhexie rumors stock, follow the
trend overshadowed rational thinking, this area of stock dramatic
fluctuations in the other area often resulted in mediocre performance of
these investors. That Graham was very difficult to understand is that
Wall Street's investment professionals even though most are well educated
and has extensive investment experience, but they can not gather in the
market into an even more rational power, but the same as the lemmings
more influenced by market sentiment about desperately kept chasing the
market. Graham considered this for a qualified investors is extremely

As a company's stock price generally results and financial position by
the support, so investors should judge a company before investing the
future direction of the stock, which is very important point is the need
to accurately measure the performance of the company. Graham to Erneq
airlines to E at the beginning of the company, for example, introduced a
measure of corporate performance in the six basic factors: income,
stability, growth, financial condition, dividend and historical prices.
Measure of the profitability of a company there are many indicators of
good or bad, such as earnings per share can directly reflect the level of
company profit levels and return on investment can examine all the assets
of the company's profitability, etc., but Graham with sales of more
preferred margin as a measure of the target company's profitability,
because the indicators can not only measure the company's product sales
profitability, and measurable sales process the company the ability to
control costs and expenses. The cost of product sales process and lower
costs, the profitability of the company sales greater. Since most of the
company's main business revenue comes from general revenue, that is,
sales revenue, so profit margins can be judged through the sale of a
company's Sheng show.

To measure the stability of a company's profitability, Graham considers
that a period of 10 years, depicted the movements in earnings per share,
and then take the company's earnings per share for the last 3 years
compared with changes in trends, if the share increase the level of
earnings is stable, then that the company's profit level to maintain a
100% stable, otherwise, the volatility of the underlying market must have
some hidden reason, product problems or accidental factors, which may be
on the future some degree of threat posed profit. The indicator for the
development of small enterprises is particularly important.

To measure the growth of earnings per share earnings growth rate of this
indicator is typically used. Earnings growth is a company in the last
three years, the annual average growth rate of earnings per share, it not
only reflects the company's viability, management, competitiveness,
development Sudu, it depicts Chu Ke Yi Bian small companies big and from
weak and strong historical footprint. Graham believes that the indicators
for measuring the growth of small companies is essential.

The company's financial situation to determine their solvency, which can
measure the company's financial flexibility and risk. If the company debt
and the appropriate return on investment is higher than interest rates,
will undoubtedly be beneficial to shareholders, but if excessive debt,
the company may suffer from financial difficulties, even bankruptcy,
which will give investors at great risk. Measure of whether the company
has sufficient liquidity, can flow ratio, quick ratio, debt ratio and
other indicators to examine, such as the current ratio of 2, quick ratio
is 1 is generally considered reasonable.

As for dividends, Graham believes that the company's dividend will not
stop, of course, the longer the better years of payments. If the dividend
is fixed in the surplus ratio, the better, however, because it shows the
company's dynamic and constantly growing steadily. Meanwhile, the
dividend payment are added to the stock's attractiveness and cohesion.
Investors should avoid those in the past three years, there have been
suspended for two years or reduce the dividend shares.

Although it is not the history of stock prices to measure the key factors
in business performance, but it can be a reflection of the company's
operating condition and performance of good and bad. Performance of the
company stock price is like a barometer, better company performance, the
company's stock price will be lower and higher esteem for investors;
company performance is unsatisfactory, the company's stock price will be
lower and lower investors abandoned . When a particular stock on a
regular basis due to some reasons or because of a decline in hot and
fall, this will undoubtedly tell investors, the price of the company's
long-term trend may be relying on that perceive and judge.

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