The Intelligent Investor — Appendixes

Appendixes

1. The Superinvestors of Graham-and-Doddsville by Warren E. Buffett

EDITOR’S NOTE: This article is an edited transcript of a talk given at Columbia University in 1984 commemorating the fiftieth anniversary of Security Analysis, written by Benjamin Graham and David L.

Dodd. This specialized volume first introduced the ideas later popularized in The Intelligent Investor. Buffett’s essay offers a fascinating study of how Graham’s disciples have used Graham’s value investing approach to realize phenomenal success in the stock market.

Is the Graham and Dodd “look for values with a significant margin of safety relative to prices” approach to security analysis out of date?

Many of the professors who write textbooks today say yes. They argue that the stock market is efficient; that is, that stock prices reflect everything that is known about a company’s prospects and about the state of the economy. There are no undervalued stocks, these theorists argue, because there are smart security analysts who utilize all available information to ensure unfailingly appropriate prices. Investors who seem to beat the market year after year are just lucky. “If prices fully reflect available information, this sort of investment adeptness is ruled out,” writes one of today’s textbook authors.