Graham’s choice of investing in individual stocks is basically based on the recoverable value of assets. Therefore, he values dividends and invests in company assets. He is committed to qualitative analysis. The company he likes is a second-tier company, a large company that has been neglected.
However, Graham’s example of his own investment in GEOGO also shows that there are other ways to make money on Wall Street.
The profit obtained from this investment decision by GEICO greatly exceeds all other profits obtained from various businesses (through a large number of investigations, endless thinking and countless decisions) in the field of partnership expertise in the past 20 years.
The obvious significance of this story is that there are various ways of making money and investing on Wall Street. Another less obvious meaning is that a lucky opportunity, or a very wise decision (can we distinguish between the two?) may result in more than a lifetime effort of a person familiar with the business. but. Behind lucky or key decisions, there must generally be conditions such as preparation and professional ability. People must lay a sufficient foundation and obtain sufficient recognition before the doors of these opportunities will be opened to them. People must have certain means, judgment and courage to take advantage of these opportunities.
1. First-tier companies and second-tier companies: A sufficiently low price can turn securities of average quality into a stable investment opportunity. If the purchaser understands the information, has certain experience, and can achieve appropriate diversification.
When investors reject the stocks of second-class companies, despite the relatively low prices of these stocks, they think or worry about the bad prospects of such companies. In fact, at least subconsciously. They would think that any price level of these stocks is too high because they are going to die out — just like a similar theory in 1929, when people thought that any price for “blue chip stocks” was not high because of their future The prospects are unlimited. Both of these views are exaggerated, and at the same time they will cause serious investment errors.
Compared with major companies, the relationship between shareholders and management, as well as the relationship between internal and external shareholders, of Type II companies are generally more important and more controversial.
In short, compared with large companies, the stock prices of second-tier companies are more volatile;
The greater the premium beyond the book value, the more unstable the determination of the company’s intrinsic value — this value depends more on changes in the mood and capacity of the stock market.
2. Graham’s evaluation of growth stocks:
1) The value has been reflected in the price;
2) Growth is difficult to sustain
3) Growth stocks are suitable for insiders
4) The performance of growth stock funds is not outstanding, and individual investors are even less capable of doing better.
3. Recommendations for stocks of active investors
3.1 Large companies that are not very popular
a) Use capital and human resources to overcome difficulties
b) The market is likely to respond quickly to any improvement of the company
c) First adopt the idea of ”low price-earnings ratio”, and then add some other quantitative and qualitative requirements.
3.2 Buy cheap securities
a) Price-to-earnings ratio method: disappointing results in the current period; long-term neglect or unpopular; second-class companies
Disappointing results of the current period: It is also necessary to consider that the profits of the past 10 years or more have at least good stability; at the same time, the company has sufficient scale and financial strength to cope with the difficulties that may arise in the future.
b) Appraisal method: The selling price is lower than the company’s net working capital (current assets minus all liabilities) (after deducting all senior debt).
3.3 Arbitrage
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