Benjamin Graham

“While the Stock Exchange list exhibits the widest diversity, in both directions, between market prices and book values, the underlying explanation is simple enough. In general, prosperous enterprises sell for more than their assets, and unsuccessful ones sell for less.”

“The word preferred does not add anything to the value of an issue. If a common stock has just as large earnings applicable to it and no greater deduction ahead of it, it must be more valuable than a similarly situated preferred — because the common stock is entitled to all future earnings and the preferred only to a restricted portion thereof.”

“The man who is sure improvement is coming can buy on the basis of current less favorable conditions, and thus derive the full benefit of the betterment — if it materializes.”

“It is important to make sure that one is not lured by rash enthusiasm into commitments at levels greatly above those soundly warranted by the financial set-up and the earnings record.”

“The stockholder wants both income and appreciation, but in general the more he gets of one the less he realizes of the other.”

“All experienced investors know that earning power exerts a far more potent influence over stock prices than does property value.”

“The worth of a business is measured not by what has been put into it, but by what can be taken out of it.”

“Current earnings, future prospects, management, marketability are all factors more or less independent of assets which contribute their share to the intrinsic value.”

“The analysis of security values is not an abstruse science. While in essence mathematical, it does not soar into the realms of calculus — in fact, it rarely gets as far as algebra.”

“Quotations fluctuate constantly, reacting often illogically to all sorts of temporary and even trivial influences.”

“There is a considerable tendency for common stock investors to do the greater part of their buying, both of “good” and “bad” securities, at high levels of the market. They are equally inclined to do the greater part of their selling at low levels of the market, a procedure which is not conducive to successful results.”

“My own opinion is that the selection of individual securities is a matter partly of a special kind of judgment and insight, and partly of a good deal of security analysis training.”

“In the stock market, facts are important, but emphasis is all important.”

“Tradition, sentiment, vague generalizations, unsubstantiated rumors, can never be made the basis of sound investment or intelligent speculation. Now and then large profits are realized on no better foundation — merely proving that sometimes luck laughs at logic.”

“In a speculative market, what counts is imagination and not analysts.”

“It is easy, of course, to pick out good companies, companies that are better than other companies. But that is not the same thing as picking out good stocks to buy at their current prices.”

“If you have an opinion about the level of prices, it should be an opinion based upon your concept of the values of securities in relation to price, rather than on any prophecy or expectation of changes or of the continuance of a given moment.”

“I am skeptical about stock market forecasting by anybody, and particularly by bankers.”

“I don’t think the objective of investment should ever be to take a risk in order to get a return. I think the objective of shrewd investment should be to find opportunities which offer a larger return than the average, combined with adequate safety.”

“The only sound distinction in investment policies for one type of investor or another is based not on his financial position but on his financial competence and financial preparation.”

“Please do not forget that as the common stock level advances, the advantages of common stocks appear to be more attractive and the basic need for owning them becomes more persuasive in everybody’s reasoning. Yet in fact, common stocks undoubtedly become riskier as the price advances, and thus the risk increases as the widespread acceptance of common stock develops.”

“It may be a fair generalization to assert that the top levels of most “normal” bull markets are characterized by a tendency to equate stock risks with bond risks.”

“Perhaps nothing is more indicative of the quality of a company’s management than its accounting methods.”

“Discrepancies — and hence opportunities — in securities originate most often when events move faster than quotations.”

“I am convinced that an individual investor with sound principles, and soundly advised, can do distinctly better over the long pull than a large institution.”

“If you can invest your money under fair conditions, in fact under attractive specific conditions, I think one certainly should do so even if the market should go down further and even if the securities you buy may also go down after you buy them.”

“The successful purchase of growth stocks requires two rather obvious conditions: First, that their prospect of growth be realized; and, second, that the market has not already pretty well discounted these growth prospects.”

“The trouble with stockholders, in my humble opinion, is that not enough of them are disgruntled.”

“Speculation, I imagine, is a theme almost as popular as love; but in both cases most of the comments made are rather trite and not particularly helpful.”

“Speculative operations are all concerned with changes in price. In some cases the emphasis is on price changes alone, and in other cases the emphasis is on changes in value which are expected to give rise to changes in price.”

“The problem is not whether price changes should be disregarded — because clearly they should not be — but rather in what way can the investor and the security analyst deal intelligently with the price changes which take place.”

“If we assume that a very considerable amount of Wall Street activity must inevitably have elements of chance in it, then the sound idea would be to measure these chances as accurately as you can, and play the game in the direction of having the odds on your side.”

“The trouble with market forecasting is not that it is done by unintelligent and unskillful people. Quite to the contrary, the trouble is that it is done by so many really expert people that their efforts constantly neutralize each other, and end up almost exactly in zero.”

“Those with enterprise haven’t the money, and those with money haven’t the enterprise, to buy stocks when they are cheap.”

“Wall Street has a beautiful collection of very ancient and often very incorrect traditions.”

“The strange revolutions wrought by time are nowhere so evident as in the securities market, where an accurate comparison of the present with the past is afforded by the price record over a period of years.”

“Economist picture a thousand buyers and sellers congregating in the market place to match their keen wits and finally evolve the correct price for each commodity. In the securities market particularly, the word of the ticker is accepted as law, so that one often thinks of prices as determining values, instead of vice-versa.”

“If we really knew what the future will bring that is all we would have to know; but since stock market people can only guess the future and since they have the embarrassing habit of guessing wrongly, it seems best not to lay too much stress upon forecasts.”

“Let us define the speculator as one who seeks to profit from market movements, without primary regard to intrinsic values; the “prudent stock investor” as one who (a) buys only at prices amply supported by underlying value, and (b) who determinedly reduces his stock holdings when the market enters the speculative phase of a sustained advance.”

“Participation in the stock market is not limited to the experienced, the conservative, nor even the intelligent. It is a game at which any number of people may play. And as the market level rises, the quantity of players grows rapidly and their quality diminishes somewhat in proportion.”

“The only significance of stock market gyrations to the true investor is that they give him an opportunity to buy good common stocks when they are cheap — or at least reasonably priced — and at times offer him an invitation to sell out at temptingly high levels.”

“A common stock investor is one who regards his common stock holdings as a proprietary interest in various businesses, not as a series of quotations in a newspaper.”

“The true measure of common stocks values, of course, is not found by reference to price movements alone, but by price in relation to earnings, dividends, future prospects and, to a small extent, asset values.”

“The chief hazard of a careful common stock program is not that it may bring unexpected losses, but that its profits will turn the investor into a speculator greedy for quicker and bigger gains — and therefore headed for ultimate disaster.”

“My experience teaches me that by far the largest losses have been sustained by investors through buying securities of inferior quality under favorable general conditions.”

“It is an axiom of investment that securities should be purchased because the buyer believes in their soundness, and not because he needs a certain income.”

“In the halcyon days of prosperity, the investor is satisfied with increased dividends and a rising market, and cares very little about dry statistics.”

“Investors venerate their old gods long after their divinity is departed.”

“The Street, unfortunately, is fairly well inured to the bursting of bubbles.”

“To my mind, the so-called growth-stock investor — or the average security analyst for that matter — has no idea of how much to pay for a growth stock, how many stocks to buy to obtain the desired return, or how their prices will behave.”

“The only thing you can be sure of is that there are times when large numbers of stocks are priced too high and other times when they’re priced too low.”

“The value approach has been founded on the premise that in many — but by no means in all — cases a dependable range of valuation can be established for a common stock by analytical techniques; that often this range differs substantially from the current price; and that such differences offer rewarding opportunities for investment operations.”

“Real investment risk is measured not by the percent that a stock may decline in price in relation to the general market in a given period, but by the danger of a loss of quality and earning power through economic changes or deterioration in management.”

“The idea of measuring investment risks by price fluctuations is repugnant to me, for the very reason that it confuses what the stock market says with what actually happens to the owners’ stake in the business.”

“To establish the right price for a stock the market must have adequate information, but it by no means follows that if the market has this information it will thereupon establish the right price.”

“Knowledge is only one ingredient on arriving at a stock’s proper price. The other ingredient, fully as important as information is sound judgment.”

“I don’t see how you can say that the prices made in Wall Street are the right prices in any intelligent definition of what right prices would be.”

“They used to say about the Bourbons that they forgot nothing and they learned nothing, and I’ll say about the Wall Street people, typically, is that they learn nothing, and they forget everything.”

“I think this business of greed — the excessive hopes and fears and so on — will be with us as long as there will be people.”

“There are two requirements for success in Wall Street. One, you have to think correctly; and secondly, you have to think independently.”

“I am an exponent of the philosophy that the main objective of common stock investment should be pricing, not timing; and by pricing I mean the endeavor to buy securities at prices which are attractive, letting timing take care of itself.”

“If all that can be promised is an average result, how can managers expect to be paid large fees for providing that average result?”

“It is a safe prediction for me to make that, in future years as in the past, common stocks will advance too far and decline too far, and that investors, like speculators — and institutions, like individuals — will have their periods of enchantment and disenchantment with equities.”

“I think the future of equities will be roughly the same as their past; in particular, common stock purchases will prove satisfactory when made at appropriate price levels.”

“I deny emphatically that because the market has all the information it needs to establish a correct price the prices it actually registers are in fact correct.”

“I insist that more damage has been done to stock values and to the future of equities from inside Wall Street than from outside Wall Street.”

“A hot stock, like a hot stove, should be handled with care.”

“Probably the largest aggregate losses are suffered by people who invest overenthusiastically in a basically sound company.”

“The typical experience of the speculator is one of temporary profit and ultimate loss.”

“No prediction — whether of a repetition of past patterns or of a complete break with past patterns — can be proved in advance to be right.”

“Speculators often prosper through ignorance.”

“All my experience goes to show that most investment advisers take their opinions and measures of stock values from stock prices. In the stock market, value standards do not determine prices; prices determine value standards.”

“People without experience or superior ability may make a lot of money fast in the stock market, but they cannot keep what they make, and most of them will end up as net losers.”

“A large advance in the stock market is basically a sign for caution and not a reason for confidence.”

“Investors feelings and reactions regarding inflation are probably more the result of the stock market action that they have recently experienced than the cause of it.”

“The investor must recognize that there are uncertain, and hence, speculative elements inherent in any policy he follows.”

“In 44 years of Wall Street experience and study, I have never seen dependable calculations made about common stock values, or related investment policies, that went beyond simple arithmetic or the most elementary algebra.”

“The higher the quality of a company the more inescapable is the speculative component in its price, and the more subject it is to wide price variations.”

“Most people sell stocks at low prices not because they have to but because they are scared.”

“Let us define the speculator as one who seeks to profit from market movements, without primary regard to intrinsic value; the prudent stock investor as one who (a) buys only at prices amply supported by underlying value, and (b) who determinedly reduces his stock holdings when the market enters the speculative phase of a sustained advance.”

“The future, as I see it, is something to be protected against rather than to exploit.”

“It is interesting to see how unpopular companies can become, merely because their immediate prospects are clouded in the speculative mind.”

“Experience in former markets indicates that just as they are too high in bull markets, they get too low in bear markets.”

“These chaps start out reading Graham and Dodd and I’m sure most of them are quite impressed by it in business school. I take some malicious pleasure in saying it’s the book on finance that’s been read by more people and disregarded by more people than any other that I know of.”

“The true measure of common stock values, of course, is not found by reference to price movements alone, but by price in relation to earnings, dividends, future prospects and, to a small extent, asset values.”

“Mathematics is ordinarily considered as producing precise and dependable results; but in the stock market the more elaborate and abstruse the mathematics the more uncertain and speculative are the conclusions we draw therefrom.”

“We know from experience that eventually the market catches up with value. It realizes it in one way or another.”

“Many mistakes have been made in buying growth stocks on the theory that the future will duplicate the past.”

“The psychological mood of people changes more drastically than anything else in finance. Human nature changes least of all.”

“To some degree, it is the consequence of the very instability of investors’ thinking — the very variation in investor confidence — which leads them to view the picture through rosy glasses one year and through dark glasses the next year.”

“The market cycle of the future may prove to be surprisingly independent of the business cycle, and it may even exist if there is no business cycle — which is in itself quite an assumption, but not an entire impossibility.”

“If a common stock is a good investment it is also a good speculation.”

“Be skeptical of the popular reasoning behind any spectacular move in the stock market — but don’t be too sure this reasoning is wrong.”

“When it comes to statements about the future in the economic realm, none of us have knowledge in the scientific sense of the term. What we have is opinions and surmises — let us hope, based upon adequate reflections and study.”

“I believe that the trend of stock equities will continue in the future as it has in the past — and that is irregularly upward, with some emphasis upon the adverb irregularly.”

“What the corporate tax actually works out as is a dilution of the stock equities. It is the equivalent of a payment of a stock dividend which goes to the government instead of to the stockholders.”

“I think that the future of equity investment, when it is made at a reasonable price, is a promising one, and one that deserves the confidence of those interested in the investment field.”

“The broad pattern of market action in the past is the best guide to the future — but it is not an infallible guide.”

“Economic events rarely unfold in the way stock-market people forecast them.”

“Allied to the general pattern of market movements is the general pattern of speculative thinking.”

“Experience shows that when really cheap issues are scarce the general market is high; but we do not present this as an infallible principle.”

“It is a great mistake to refine the analysis of a single year’s showing to the last possible penny, in order to build from that some substantial idea of the value of the stock; because it cannot be found in the results for any given year no matter how accurately those results were stated.”

“No matter how complete and accurate an analysis may be, there is always a possibility either of some new condition arising to belie your conclusions, or else of the market refusing to act in accordance with your just expectations.”

“It may be that professionally managed funds are too large a part of the total picture to be able to outperform the market as a whole; it may also be true, as I suspect, that certain weaknesses in their basic principles of stock selection tend to offset the superior training, intelligence, and effort that they bring to this task.”

“If the relative stability of general business and corporate profits produces an unlimited enthusiasm and demand for common stocks, then it must eventually produce instability in stock prices.”

“My experience leads me to predict that the action of the market will govern the investor’s choice as to probable future growth rates, rather than vice-versa.”

“The market cycle will once more prove to be the human-nature cycle; its economic background will have changed, but not its basic character nor the consequences of its character.”

“Sound common stocks, bought at sound prices, are always good investments.”

“Good common stocks are investment media which are subject to speculative influences. The speculative influences are not in the common stocks; they are in the minds of the people who buy and sell them.”

“The problem of investment in common stocks is either to insulate yourselves from the speculative influences, or else to adjust your investment policy so that you can take advantage of the speculative fluctuations that are imposed upon the basic investment quality of common stocks.”

“The security analyst can only give you certain hints as to what the solution is likely to be, certain indications of a range of value rather than a specific figure, and perhaps a diffident suggestion as to where within this range he believes the probabilities of the future will lie.”