Book Review: Security Analysis by Benjamin Graham and David Dodd

Security Analysis Book Review

Here is my Security Analysis book review.   This book is one of the best dividend investing books out there.  Security Analysis 6th Edition (published in 2009) book is over 700 pages and it definitely intimidated me.  That’s why it was on my ‘to read’ list last year and it did not get read.  Then I put it on my list again this year and I finally read it.

To be honest, it’s a monstrosity to read and I skimmed over some of the chapters just because some chapters were not relevant or it seemed that they were dated.  It reads much like a textbook, but the chapters are short.  Here and there I would find a great quote hidden within the text- such as the one below:

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Who is Benjamin Graham?

Benjamin Graham was a finance professor at Columbia University and he was Warren Buffett’s idol and mentor.  Well, Warren Buffett was actually his student and he later started working for Benjamin Graham.  An interesting tid-bit (well this painted a less than stellar picture about him in my eyes) about Benjamin Graham was that he had an affair with his late son’s girlfriend.  Yes you read that right.  He then eventually separated from his wife and moved to France to be with his deceased son’s girlfriend.

Benjamin Graham is the original value investor and is quoted as being the father of value investing.  Benjamin Graham wrote the Intelligent Investor, which is one of the more recommended books for people interested in investing to read (and more relevant for today’s time I would say).  He wrote Security Analysis in 1934.  Even though the book is 84 years old, it is still very relevant and timeless.  A classic!

If you’re into reading about ‘get rich quick methods” then this book is likely not for you.

Here’s what I liked and disliked about Security Analysis.

What I Liked About Security Analysis

Just like with the Intelligent Investor, I really liked the introductions and commentary to each section written by Seth A. Klarman, James Grant etc. Many admitted to not reading the book until asked to write the commentary.  Probably the best commentary was the one provided by Warren Buffett himself, in the Foreward.  He says he has four books in his personal library that he particular treasures, one is Security Analysis, the other is Intelligent Investor, the third is Wealth of Nations, and the fourth is an original copy of Security Analysis with David Dodd’s own notes scribbled in the margins.

I liked the concepts reviewed in the book, such as intrinsic value, book value, the margin of safety, and his repeated emphasis on the irrationality of investors (because it is human nature).  It is a good reference book and goes over how to evaluate balance sheets and income statements.

I liked how throughout the book, Benjamin Graham throws shade on speculators.  Benjamin Graham said there is a very fine line between being a speculator and being an investor.  He reviews how to read accounting statements and balance sheets to ‘read between the lines’ of statements that might show that a company is not making as much money as you might initially think.  He also recommends looking back at previous earnings statements to review the average.  You can calculate the book value and ascertain the difference between the market value, and then come up with the company’s intrinsic value before you decide to invest in the company.

What I Disliked About Security Analysis

It was a really long read (as mentioned earlier, over 700 pages).  Also, some of the chapters are not as relevant, such as the section on Senior Securities with Speculative Features.  Some of the examples were also quite dated.  Also, with the advent of discount brokerages and online brokerages, I wonder if some chapters in the book are even less relevant.

Also, Security Analysis was really dry except for the commentary in certain chapters.  If you think Intelligent Investor is a difficult read, this is probably about 10 times worse.

My Favourite Quotes from Security Analysis

“The essential point (of intrinsic value) is that security analysis does not seek to determine exactly what is the intrinsic value of a given security. It needs only to establish either that the value is adequate… For such purposes, an indefinite and approximate measure of the intrinsic value may be sufficient.

It is quite possible to decide by inspection that a woman is old enough to vote without knowing her age or that a man is heavier than he should be without knowing his weight.”

— Benjamin Graham

Basically, although you can’t define the intrinsic value completely of a security, you can ascertain whether something is off intrinsic value.

“In other words, the market is not a weighing machine, on which the value of each issue is recorded by an exact and impersonal mechanism, in accordance with its specific qualities. Rather should we say that the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion.”

— Benjamin Graham

I’ll definitely be going over a few chapters again to read them in more detail.

Hope you enjoyed this Security Analysis book review.

Readers, have you read Security Analysis?  What is your Security Analysis book review?

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4 thoughts on “ Book Review: Security Analysis by Benjamin Graham and David Dodd”

  1. You are really diligent. That is great that you plowed through this book. I’m probably overly myopic and just stick to my own few investing principles that I have learned and developed and followed over the years. I really should expand my horizons. Tom

    • @Tom- You’ve done well, you are already retired. Your investing principles are basically the same as Security Analysis’ 😉

  2. I saw this edition in the library a few months back and remembered you mentioning that this book was your goal to read this year. Congrats to you on reading through it because that really is a big book. I don’t blame you on skipping some chapters especially the ones that are really dry since those type of books can drag. I felt the same way reading ‘Intelligent Investor’ but understood the premise of the book, making smart decision making on your investments and reducing risks.

    • @Kris- Hah, cool that you thought of me when you saw the book. BBB forever! This one is worse than Intelligent Investor as Intelligent Investor had more ‘modern’ commentary.


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