Security Analysis

What is this book about?

Graham and Dodd turned security valuation from a matter of personal judgment into a testable method: estimate intrinsic value from balance sheets and earning power, and keep the distinctions between investment and speculation, price and value, firmly in view. The book established security analysis as a discipline.

Why read it?

It is the technical foundation beneath The Intelligent Investor: that book states the principles, this one supplies the method. The chapters on financial statements and bond covenants are dated in detail, but they remain the best training in reading a margin of safety out of primary documents.

Core Ideas

• Intrinsic value is a range rather than a point; the analyst’s task is to judge whether price lies clearly outside it.
• Investment requires thorough analysis, safety of principal, and an adequate return; miss one and it is speculation.
• The safety of a bond or preferred stock should be tested by historical earning power and asset coverage, not by ratings.
• The purpose of analysis is not precise prediction but establishing a wide enough gap between price and value.

What questions does this book try to answer?

• On what basis should the intrinsic value of a security be estimated?
• How can one judge whether a bond or preferred stock is genuinely safe?

Who should read it?

For readers willing to invest time in financial analysis, with basic accounting and corporate finance in hand. It works better as a reference than as a cover-to-cover read.