“Modern Security Analysis is full of useful discussions of such standard topics as creditworthiness, market efficiency, diversification, and financial accounting. But it also includes descriptions of more controversial ideas about the overriding importance of tangible net asset value, the shortcomings of the Graham–Dodd approach to value investing, and the irrelevance of both modern capital theory and broker/dealer research.”
—CFA Institute Book Review
With the crash of 2008 still ringing in the market's collective ears, the value investing philosophy has never seemed more relevant or sound. But in the eighty years since Benjamin Graham and David Dodd's Security Analysis took the investing world by storm, much has changed in the investing environment.
Working from the simple guiding principle that "safe and cheap" is the most reliable way to minimize investment risk while maximizing long-term returns, Whitman, over the course of his more than fifty years as an investor and fund manager, has developed an investing approach that has made fortunes for his many clients—and himself—in all economic climates.
A book that is sure to become an investing classic, Modern Security Analysis reveals the details of Whitman's approach to analyzing businesses and the securities they issue.
While conventional approaches to investing, including Graham and Dodd fundamentalism and academic finance, take a top-down approach to analyzing securities and businesses, the bottom-up approach you'll discover here looks at companies not merely as aggregates of operational cash flows and earnings—their pure going concern attributes—but also as entities actively involved in wealth-creating "resource conversion" activities. In essence, that entails identifying a company's potential for generating wealth in many different ways, in addition to flows from operations, including mergers and acquisitions, spinoffs, recapitalizations, liquidations, changes of control, having attractive access to capital markets, and more.
Clearly accessible with the help of numerous examples and several case studies, Martin Whitman and co-author Professor Fernando Diz describe proven methods for:
- Developing a thorough understanding of many companies' business and wealth generating attributes
- Appraising business managers not only as operators but also as dealmakers, investors, and financiers
- Understanding the importance of credit worthiness for any economic entity
- Understanding the important differences between control and passive investing
- Appraising and avoiding investment risk
- Choosing the right amount of diversification or the level of portfolio concentration
- Buying growth without paying for it
- Avoiding the many pitfalls of following conventional wisdom
- Understanding the significance of resource conversion activities in the generation of business value
- Understanding what value investing is relative to other forms of investing
Offering a unique opportunity to learn a proven, time-tested alternative to conventional security analysis from an investing legend, this book is must-reading for finance professionals, including security analysts, money managers, institutional investors, finance academics, and economists as well as anyone seeking to invest with a large margin of safety.