Jul 12, 2008
Jason Zweig Pens Intelligent Investor Column at WSJ
Most readers will recognize Jason Zweig as the guy who revised The Intelligent Investor by Benjamin Graham. In the 2003 annual letter (PDF) to Berkshire Hathaway shareholders, Warren Buffett Remarked that The Intelligent Investor is his “favorite book on investing” and that Zweig did a “first-class job in revising” it.
This was actually one of the first investing books that I read. What I liked most was Zweig’s own remarks after every chapter. Zweig was able to take a book written a long time ago and make it easy to digest and show how Benjamin Graham’s concepts parallel what is going on in modern financial markets. The commentary he added was helpful because even if some of the material was hard to understand, I was able to come back to it after reading the commentary.
So today I was pleased to see that Zweig would be penning a new column at the WSJ. Zweig says:
In the last long bear market, 1969 to 1982, stocks returned just 5.6% annually; after inflation, investors lost more than 2% a year. That mauling by the bear made stocks so inexpensive that over the ensuing 18 years they went up 18.5% a year, enough to turn $10,000 into more than $200,000.
The people who so far this year have yanked $39 billion out of U.S. stock funds, and $6 billion out of exchange-traded stock funds, do not understand this. But if you are still in your saving and investing years, a bear market is a gift from the financial gods — and the longer it lasts, the better off you will be. Instead of running from the bear, you should embrace him.
This new column takes its name from the classic book by Benjamin Graham, who wrote that “the investor’s chief problem — and even his worst enemy — is likely to be himself.” I hope to help you understand the chaotic markets around you, and the even more treacherous enemy within. For, as Mr. Buffett has also pointed out, investing is much like dieting: It is simple, but not easy. Everyone knows what it takes to lose weight. (Eat less, exercise more.) Nothing could be simpler, but few things are harder in a world full of chocolate cake and Cheetos.
Stop Worrying, and Learn to Love the Bear (WSJ)
With many investors hurting right now, a Graham themed column might be just what they need. It would prevent them from pulling out of the markets all together and instead expose them to concepts like Mr. Market and the need for a margin of safety when you invest in companies. Those two ideas will be essential for surviving and thriving in the negative market we seem to be in.
It looks like the WSJ has not set up an RSS feed yet for Zweig’s column, but since I’m really looking forward to them I’ll be linking and posting excerpts whenever I see them.
Here is my favorite quote by Benjamin Graham which he gave to the Financial Analysts Journal in 1976 shortly before he died.
“I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when Graham and Dodd was first published; but the situation has changed…[Today] I doubt whether such extensive efforts will generate sufficiently superior selections to justify their cost…I’m on the side of the ‘efficient market’ school of thought.”
Lowell, simultaneously at around 1976 Benjamin Graham was advocating the use of a stock screen:
“In his next interview published in Medical Economics, September 20, 1976 titled “The Simplest Way to Select Bargain Stocks” Graham, then 82, proposed a simpler, more refined formula that consisted of:
PE Ratio of 7x-10x or less (Based on 2x current AAA bond rates)*;
Equity/Asset Ration of .5 or more (e.g. Debt/Equity >1).”
I think that the line you’re quoting is not so much a vote of confidence for EMH, but rather a suggestion that you do not have to partake in extensive security analysis to yield good returns – you can use less intensive methods like his screen.
Dear Tariq. Debt/Equity >1 strikes me as very odd as the thing to look for as a sign of a good stock. Perhaps D/E less than 1 is the right stuff?
David you’re right. The page I was quoting from had a typo. It’s Debt/Equity < 1.