The Foundational Text of Value Investing
Security Analysis
by Benjamin Graham & David Dodd
First published in 1934. Still the best book on investing ever written. If you call yourself a value investor and you have not read this, you are borrowing someone else's framework without understanding it.
Why This Book Matters
I have read this book cover to cover. I am heavily invested in Fannie Mae and Freddie Mac junior preferred shares — securities that Graham and Dodd would have analyzed exactly the way I analyze them: asset backing, earnings power, coverage ratios, margin of safety.
Everything I do as an investor traces back to this book. When I published 300+ articles on SeekingAlpha about the GSE conservatorship, I was doing exactly what Graham taught: reading the primary source filings, calculating intrinsic value, and buying when the market price was a fraction of what the securities were worth.
If you want to understand my investment thesis, read this first.
Who Recommends It
The three greatest value investors alive all point to this book.
What You Will Learn
The concepts from this book that changed how the entire world thinks about investing.
Intrinsic Value
Every security has a value independent of its market price. Graham teaches you how to calculate it and exploit the gap when price diverges from value.
Margin of Safety
The most important concept in investing. Buy at a price so far below intrinsic value that even if you are wrong, you still do not lose money.
Mr. Market
The market is an emotional partner who offers you prices every day. Sometimes those prices are rational. Often they are not. Your job is to know the difference.
Bond & Preferred Stock Analysis
Graham literally wrote the framework for analyzing fixed-income securities. Coverage ratios, asset backing, and the hierarchy of claims.
Earnings Power
Not one quarter. Not one year. Graham teaches you to evaluate the sustainable earning power of a business across full economic cycles.
Financial Statement Analysis
How to read a balance sheet, income statement, and cash flow statement with the eye of a forensic accountant. Where companies hide and where they cannot.
Which Edition Should You Read?
There are six editions. Here is what you need to know.
6th Edition (2008) — Recommended
Foreword by Warren Buffett. Updated commentary by modern value investors. The best starting point for new readers. This is the edition the free PDF is based on.
1st Edition (1934) — The Original
Written during the Great Depression. The rawest version of Graham and Dodd's thinking. Historical artifact and intellectually fascinating but harder to read.
2nd Edition (1940) — The Classic
Revised after the 1937-38 market crash. Many consider this Graham's best work. Seth Klarman particularly recommends this edition.
Read This Next
If Security Analysis is the textbook, these are the companion reads.
What to Read Next
Three more books every value investor should own.
Get the PDF
The 6th edition with Warren Buffett's foreword. Enter your email for the free download, or buy the physical copy on Amazon.
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