Financial benefit of reading Ben Graham's book knowing Warren Buffett's alpha?

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hedgehog
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Financial benefit of reading Ben Graham's book knowing Warren Buffett's alpha?

Post by hedgehog » Tue Jul 01, 2014 7:02 am

Full title: What is the financial benefit of reading Benjamin Graham's classic book, The Intelligent Investor knowing Warren Buffett's alpha?

Buffett's alpha according to IFA.tv is not significantly better than buying a dumb index fund or Permanent Portfolio:
https://www.youtube.com/watch?v=xztbxCbqVeM

The Intelligent Investor is sure a fascinating classic which definitely should be on your list if you like reading into this stuff in your free time.

But hey, life is short, many others live a busy life and just want to have a safe nest egg or retirement portfolio - and you can just go to an excursion with your family instead of long finance books; only read this stuff if it gives them kind of an edge in achieving the above goals. Considering you belong to the second category, is it still worth a reading? Or what else are the must reads besides Permanent Portfolio books?
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blackomen
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Re: Financial benefit of reading Ben Graham's book knowing Warren Buffett's alpha?

Post by blackomen » Tue Jul 01, 2014 8:42 am

Correct me if I'm wrong but weren't index funds unavailable in Graham and Buffett's heydays?  If so, generating even an alpha of 0 by buying 10 stocks rather than 500 (from the S&P 500) would be a win in my book.
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Re: Financial benefit of reading Ben Graham's book knowing Warren Buffett's alpha?

Post by magneto » Tue Jul 01, 2014 8:51 am

One of the key points noted from Graham's book was :-

‘Since common stocks, even of investment grade, are subject to recurrent and wide fluctuations in their prices, the intelligent investor should be interested in the possibilities of profiting from these pendulum swings.  There are two possible ways by which he may try to do this : by way of TIMING and the way of PRICING.  By timing we mean the endeavour to anticipate the action of the stock …… .  By pricing we mean the endeavour to buy stocks when they are below their fair value and to sell them when they rise above such value. …  We are convinced that the intelligent investor can derive satisfactory results from pricing …. We are equally sure that if he places his emphasis on timing, in the sense of forecasting, he will end up a speculator and with a speculator’s financial results This distinction may seem rather tenuous to the layman, and it is not commonly accepted in Wall Street.’. 

This thinking aligns with Wm Bernstein in 'The Intelligent Asset Allocator'.  Whether we are simply rebalancing into stocks when they are cheap and vice versa as in the PP, or go beyond rebalancing to full blown Dynamic Asset Allocation (overbalancing) is a difficult choice.  Depends on whether markets mean revert and whether the investor can get a handle on valuations.

Ben Graham's book sits in a group of about ten most favored investment books on the bookshelf.  Is it essential reading for the PP, No.
Last edited by magneto on Tue Jul 01, 2014 8:56 am, edited 1 time in total.
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Re: Financial benefit of reading Ben Graham's book knowing Warren Buffett's alpha?

Post by Fragile Bill » Tue Jul 01, 2014 6:30 pm

Forbes had an article a year or so ago called "Ten Books Every Investor Should Read."  I found used copies of each of them for a few bucks apiece.  Ben Graham's was the first on the list:

The Intelligent Investor by Benjamin Graham
The Great Crash of 1929 by John Kenneth Galbraith
Common Stocks and Uncommon Profits by Philip A. Fisher
A Random Walk Down Wall Street by Burton G. Malkiel
Stocks for the Long Run by Jeremy J. Siegel
Common Sense on Mutual Funds by John C. Bogle
The Essays of Warren Buffet:  Lessons for Corporate America by Warren Buffett and Lawrence Cunningham
Irrational Exuberance by Robert J. Shiller
The Black Swan by Nicholas Nassim Taleb
How Markets Fail by John Cassidy
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l82start
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Re: Financial benefit of reading Ben Graham's book knowing Warren Buffett's alpha?

Post by l82start » Tue Jul 01, 2014 10:59 pm

i don't think i got any financial benefit but reading parts/most of it had great educational benefit, among the other things i learned, what i got from gram and buffet both, was the realization i didn't have the information, the insight, the education, or the time to do what they were doing, it was a great lead in or primer on the way toward boggle head and then PP investing...
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Re: Financial benefit of reading Ben Graham's book knowing Warren Buffett's alpha?

Post by hedgehog » Wed Jul 02, 2014 1:31 am

blackomen wrote: Correct me if I'm wrong but weren't index funds unavailable in Graham and Buffett's heydays?  If so, generating even an alpha of 0 by buying 10 stocks rather than 500 (from the S&P 500) would be a win in my book.
Sure, an interesting historical fact, but now we have index funds...
l82start wrote: i don't think i got any financial benefit but reading parts/most of it had great educational benefit, among the other things i learned, what i got from gram and buffet both, was the realization i didn't have the information, the insight, the education, or the time to do what they were doing, it was a great lead in or primer on the way toward boggle head and then PP investing...
Exactly the kind of insights I was looking for, thanks.
magneto wrote: One of the key points noted from Graham's book was :-

‘Since common stocks, even of investment grade, are subject to recurrent and wide fluctuations in their prices, the intelligent investor should be interested in the possibilities of profiting from these pendulum swings.  There are two possible ways by which he may try to do this : by way of TIMING and the way of PRICING.  By timing we mean the endeavour to anticipate the action of the stock …… .  By pricing we mean the endeavour to buy stocks when they are below their fair value and to sell them when they rise above such value. …  We are convinced that the intelligent investor can derive satisfactory results from pricing …. We are equally sure that if he places his emphasis on timing, in the sense of forecasting, he will end up a speculator and with a speculator’s financial results
To translate: speculator’s financial results = I guess he means bad results

And by the way this is the language of the whole book? Kind of old English for me as a non-native speaker.
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