STREET DOGS

IFrom Albert Bridge Capital: n the seminal ‘Security Analysis’, published by Benjamin Graham and David Dodd in 1934, Graham’s insights were not confined to balance sheets and income statements. He devoted much effort to psychology, overreaction, under reaction and the consensus view. Father of value-investing, he is also a very important ancestor to today’s behavioural economists.

“Investment theory should recognise that the merits of an issue (stock) reflect themselves in the market price not by automatic response or math relationship but through the minds and decisions of buyers and sellers.” (p 12)

“The market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion.” (p 23)

“The main obstacles to the success of the analyst’s work are: the inadequacy or incorrectness of the data; the uncertainties of the future; and the irrational behaviour of the market.” (p 20)

“The processes by which the securities market arrives at its appraisals are often illogical and erroneous. They are not automatic or mechanical, but psychological, for they go on in the minds of people who buy or sell.” (p 585)

“There is inertia to the typical investor. He buys by reputation rather than by analysis and he holds tenaciously to what he has bought.” (p 598)

“At times some specific development greatly strengthens the position of a (firm), but the (stock) price is slow to reflect this improvement, and thus a bargain situation is created.” (p 593)

“Undervaluations caused by neglect or prejudice may persist for an inconveniently long time, and the same applies to inflated prices caused by overenthusiasm or artificial stimulants.” (p 22)

“Guard against overemphasis upon the superficial and the temporary.” (preface viii)