Guinness (At a Glance)

Guinness	30.6.2011	30.6.2010	Change
Revenue	1,488.72	1,358.63	9.57%
Gross Profit	469.47	385.373	21.82%
Operating Profit	240.598	203.332	18.33%
Financing costs	-0.429	-0.345	24.35%
PBT	242.883	204.991	18.48%
PAT	181.378	152.691	18.79%
EPS (basic) sen	60	50.5	18.81%
NCA	233.229	239.677	-2.69%
CA	451.909	422.885	6.86%
Total Assets	685.138	662.562	3.41%
Total Equity	516.616	470.928	9.70%
NCL	32.592	31.846	2.34%
CL	135.93	159.788	-14.93%
Total Liabilities	168.522	191.634	-12.06%
Total Eq + Liab	685.138	662.562	3.41%
Cash & Eq	179.777	149.626	20.15%
LT Borrowings	0	0	#DIV/0!
ST Borrowings	0	0	#DIV/0!
Inventories	65.402	75.691	-13.59%
Trade receivables	205.966	196.135	5.01%
Trade payables	132.577	155.064	-14.50%
CA	451.909	422.885	6.86%
CL	135.93	159.788	-14.93%
Current Ratio	3.32	2.65	25.62%
PBT	242.88	204.99	18.48%
OPBCWC	286.19	233.07	22.80%
Cash from Operations	256.82	201.00	27.78%
Net CFO	196.345	143.12	37.19%
CFI	-30.25	-33.406	-9.45%
CFF	-135.944	123.86	-209.76%
Capex	-31.81	-29.91	6.35%
FCF	164.535	113.21	45.34%
Dividends paid	-135.944	-123.86	9.76%
No of ord shares	302.098	302.098	0.00%
Financial Ratios
Net Profit Margin	12.18%	11.24%	8.41%
Asset Turnover	2.17	2.05	5.96%
Financial Leverage	1.33	1.41	-5.74%
ROA	26.47%	23.05%	14.87%
ROC	53.85%	47.52%	13.31%
ROE	35.11%	32.42%	8.28%
Valuation
Price (5.3.2012)	13.68
Market cap	4132.70
P/E	22.79
P/BV	8.00
P/FCF	25.12
P/Div	30.40
DPO ratio	0.75
EY	4.39%
FCF/P	3.98%
DY	3.29%

Recent Financial Results

Announcement Date		Financial Yr. End		Qtr	Period End		Revenue RM '000		Profit/Lost RM'000		EPS		Amended
23-Feb-12		30-Jun-12		2	31-Dec-11		468,322		65,822		21.79		-
02-Nov-11		30-Jun-12		1	30-Sep-11		444,623		55,208		18.28		-
04-Aug-11		30-Jun-11		4	30-Jun-11		348,759		29,076		9.63		-
04-Aug-11		30-Jun-11		4	30-Jun-11		348,759		29,076		9.63		-

FYE	30th June
Qtr	Year	Revenue	Earnings	EPS	ttm-EPS
Q2	2012	468.322	65.822	21.79	65.91
Q1	2012	444.623	55.208	18.28	65.52
Q4	2011	348.759	29.076	9.63	60.05
Q3	2011	351.916	48.972	16.21	62.16
Q2	2011	421.414	64.635	21.4	61.4
Q1	2011	366.631	38.695	12.81	54.51
Q4	2010	308.713	35.477	11.74	50.54
Q3	2010	370.817	46.679	15.45
Q2	2010	378.134	43.836	14.51
Q1	2010	300.969	26.699	8.84

Petronas Dagangan (At a Glance)

PetDag 31.03.2011 31.03.2010 Change Revenue 23,251.78 20,671.18 12.48% Gross Profit 2,100.70 1979.4 6.13% Operating Profit 1209.173 1048.987 15.27% Financing costs -1.015 -3.409 -70.23% PBT 1208.911 1046.002 15.57% PAT 875.927 757.524 15.63% EPS (basic) sen 87.5 75.8 15.44% NCA 3957.02 3923.847 0.85% CA 4527.712 3960.901 14.31% Total Assets 8484.732 7884.748 7.61% Total Equity 4830.594 4594.058 5.15% NCL 198.629 147.48 34.68% CL 3455.509 3143.21 9.94% Total Liabilities 3654.138 3290.69 11.04% Total Eq + Liab 8484.732 7884.748 7.61% Cash & Eq 1026.209 912.471 12.46% LT Borrowings 16.232 0 #DIV/0! ST Borrowings 0 0 #DIV/0! Inventories 832.6 751.182 10.84% Trade receivables 2668.903 2297.248 16.18% Trade payables 3351.073 3000.404 11.69% CA 4527.712 3960.901 14.31% CL 3455.509 3143.21 9.94% Current Ratio 1.31 1.26 3.98% Net CFO 1043.938 1106.253 -5.63% CFI -307.041 -355.139 -13.54% CFF -623.159 -357.643 74.24% Capex -289.167 -341.746 -15.39% FCF 754.771 764.507 -1.27% Dividends paid -633.327 -357.643 77.08% No of ord shares 993.454 993.454 0.00% Financial Ratios Net Profit Margin 3.77% 3.66% 2.80% Asset Turnover 2.74 2.62 4.53% Financial Leverage 1.76 1.72 2.34% ROA 10.32% 9.61% 7.45% ROC 22.93% 20.58% 11.42% ROE 18.13% 16.49% 9.97% Valuation Pri ce (5.3.2012) 18.24 Market cap 18120.60096 P/E 20.69 P/BV 3.75 P/FCF 24.01 P/Div 28.61 DPO ratio 0.72 EY 4.83% FCF/P 4.17% DY 3.50% Recent Financial Results Announcement Date Financial Yr. End Qtr Period End Revenue RM '000 Profit/Lost RM'000 EPS Amended 24-Feb-12 31-Dec-11 Other 31-Dec-11 7,422,923 223,061 22.30 - 23-Nov-11 31-Dec-11 Other 30-Sep-11 7,304,943 225,728 22.60 - 10-Aug-11 31-Dec-11 Other 30-Jun-11 7,539,927 210,511 21.00 - 26-May-11 31-Mar-11 4 31-Mar-11 6,382,665 229,773 23.00 - ttm-EPS 88.9 sen Price RM 18.34 PE (ttm) 20.6x EY 4.85%

Is Mr. Market still around? Is he still bipolar? You bet he is.

 M  R .   M A R  K  E T

Most of the time, the market is mostly accurate in pricing most stocks.  Millions of buyers and sellers haggling over price do a remarkably good job of valuing companies—on average. But sometimes, the price is not right; occasionally, it is very wrong indeed. And at such times, you need to understand Graham’s image of Mr. Market, probably the most brilliant metaphor ever created for explaining how stocks can become mispriced.

The manic-depressive Mr. Market does not always price stocks the way an appraiser or a private buyer would value a business. Instead, when stocks are going up, he happily pays more than their objective value; and, when they are going down, he is desperate to dump them for less than their true worth.  Is Mr. Market still around? Is he still bipolar? You bet he is

Keep these 113 words of Graham close at hand and let them guide you throughout your investing life.

The true investor scarcely ever is forced to sell his shares, and at  all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more.* Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons’ mistakes of judgment.†

* “Only to the extent that it suits his book” means “only to the extent that the price is favorable enough to justify selling the stock.” In traditional brokerage lingo, the “book” is an investor’s ledger of holdings and trades.

† This may well be the single most important paragraph in Graham’s entire book. In these 113 words Graham sums up his lifetime of experience. You cannot read these words too often; they are like Kryptonite for bear markets.  If you keep them close at hand and let them guide you throughout your investing life, you will survive whatever the markets throw at you.

Scientex (At a Glance)

Scientex	31.7.2011	31.7.2010	Change
Revenue	804.022	694.815	15.72%
Gross Profit	159.3	123.008	29.50%
Other Income	3.759	12.499	-69.93%
Operating Profit	97.437	70.046	39.10%
Finance costs	-1.573	-1.26	24.84%
PBT	96.64	70.753	36.59%
Income tax expense	-16.521	-8.613	91.81%
Earnings	80.118	62.14	28.93%
EPS (basic) sen	36	28	28.57%
NCA	444.069	435.676	1.93%
CA	281.005	239.386	17.39%
Total Assets	725.075	675.062	7.41%
CL	182.175	171.144	6.45%
NCL	36.778	53.121	-30.77%
Total Liabilities	218.985	224.265	-2.35%
Total Equity	506.121	450.796	12.27%
Total Equity and Liabilities	725.075	675.062	7.41%
Net asset per share *RM)	2.17	1.92	13.02%
Cash and bank balances	40.952	23.353	75.36%
ST Loans and borrowings	37.509	42.018	-10.73%
LT Loans and borrowings	10	26.168	-61.79%
Net Cash	-6.557	-44.833	-85.37%
Inventories	67.763	63.374	6.93%
Trade receivables	105.497	95.746	10.18%
Trade payables	136.721	125.184	9.22%
PBT	96.64	70.753	36.59%
OPFBWCC	118.915	90.431	31.50%
CFO	123.981	86.25	43.75%
Net CFO	110.941	78.137	41.98%
CFI	-39.682	-89.999	-55.91%
CFF	-53.666	19.596	-373.86%
Capex	-16.406	-24.017	-31.69%
FCF	94.535	54.12	74.68%
Dividends paid	-30.13	-10.77	179.76%
DPS sen	11	8	37.50%
No of ordinary shares	215.20	215.40	-0.10%
Net Profit Margin	0.10	0.09	11.42%
Asset Turnover	1.11	1.03	7.74%
Financial Leverage	1.43	1.50	-4.33%
ROA	0.11	0.09	20.04%
ROC	0.16	0.13	24.64%
ROE	0.16	0.14	14.84%
Price per share (2.3.2012)	2.55
Market cap	548.76
P/E	6.85
P/BV	1.08
P/FCF	5.80
P/Div	18.21
EY	14.60%
FCF/P	17.23%
DY	5.49%

Recent Financial Results

Announcement Date		Financial Yr. End		Qtr	Period End		Revenue RM '000		Profit/Lost RM'000		EPS		Amended
15-Dec-11		31-Jul-12		1	31-Oct-11		213,762		21,390		9.59		-
28-Sep-11		31-Jul-11		4	31-Jul-11		205,200		21,788		9.66		-
21-Jun-11		31-Jul-11		3	30-Apr-11		217,312		21,138		9.48		-
15-Mar-11		31-Jul-11		2	31-Jan-11		194,886		19,736		8.86		-

Recent Financial Results

Announcement Date

Financial Yr. End

Qtr

Period End

Revenue RM '000

Profit/Lost RM'000

EPS

Amended

15-Dec-10

31-Jul-11

1

31-Oct-10

186,625

17,457

7.89

-

Year	Revenue	Earnings
2007	613.092	35.184
2008	656.596	47.698
2009	509.731	37.458
2010	694.816	60.318
2011	804.023	77.246
Year	EPS	net DPS	NA/share	ROE
2007	18.29	9.44	1.5	12.19%
2008	24.14	16	1.61	14.99%
2009	17.41	10	1.74	10.01%
2010	28	18	1.92	14.58%
2011	35.9	24	2.17	16.54%

The Investor and Market Fluctuations: Price fluctuations have only one significant meaning for true investor (8)

The true investor when he owns a listed common stock, can take advantage of the daily market price or leave it alone, as dictated by his own judgment and inclination.

• He must take cognizance of important price movements, for otherwise his judgment will have nothing to work on. 
• Conceivably they may give him a warning signal which he will do well to heed—this in plain English means that he is to sell his shares because the price has gone down, foreboding worse things to come. 
• In our view such signals are misleading at least as often as they are helpful. 

Basically, price fluctuations have only one significant meaning for the true investor. 

• They provide him with an opportunity to buy wisely when prices fall sharply and 
• to sell wisely when they advance a great deal. 
• At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies

The Investor and Market Fluctuations: Mr. Market Parable (7)

Mr.Market Parable.

Imagine that in some private business you own a small share that cost you $1,000. One of your partners, named Mr. Market, is very obliging indeed.

• Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. 
• Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. 
• Often, on the other hand, Mr.Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.

If you are a prudent investor or a sensible businessman, will you let Mr. Market’s daily communication determine your view of the value of a $1,000 interest in the enterprise? Only in case you agree with him, or in case you want to trade with him. 

• You may be happy to sell out to him when he quotes you a ridiculously high price, and 
• equally happy to buy from him when his price is low. 
• But the rest of the time you will be wiser to form your own ideas of the value of your holdings, based on full reports from the company about its operations and financial position.

The Investor and Market Fluctuations: Stock Market Equity Ownership has the important attribute of Liquidity (6)

Critics of the value approach to stock investment argue that listed common stocks cannot properly be regarded or appraised in the same way as an interest in a similar private enterprise, because the presence of an organized security market “injects into equity ownership the new and extremely important attribute of liquidity.”

But what this liquidity really means is, 

• first, that the investor has the benefit of the stock market’s daily and changing appraisal of his holdings, for whatever that appraisal may be worth, and, 
• second, that the investor is able to increase or decrease his investment at the market’s daily figure—if he chooses. 

Thus the existence of a quoted market gives the investor  certain options that he does not have if his security is unquoted.

But it does not impose the current quotation on an investor who prefers to take his idea of value from some other source.

The Investor and Market Fluctuations: The Single Most Important Paragraph in Graham's entire book for the Bear Markets (5)

Let us return to our comparison between the holder of marketable shares and the man with an interest in a private business.  We have said that the former has the option of considering himself merely

• as the part owner of the various businesses he has invested in, or 
• as the holder of shares which are salable at any time he wishes at their quoted market price.

But note this important fact:
The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more.* Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons’ mistakes of judgment.†



* “Only to the extent that it suits his book” means “only to the extent that the price is favorable enough to justify selling the stock.” In traditional brokerage lingo, the “book” is an investor’s ledger of holdings and trades.

† This may well be the single most important paragraph in Graham’s entire book. In these 113 words Graham sums up his lifetime of experience. You cannot read these words too often; they are like Kryptonite for bear markets.  If you keep them close at hand and let them guide you throughout your investing life, you will survive whatever the markets throw at you.






Incidentally, a widespread situation of this kind actually existed during the dark depression days of 1931–1933.  There was then a psychological advantage in owning business interests that had no quoted market. 

• For example, people who owned first mortgages on real estate that continued to pay interest were able to tell themselves that their investments had kept their full value, there being no market quotations to indicate otherwise. 
• On the other hand, many listed corporation bonds of even better quality and greater underlying strength suffered severe shrinkages in their market quotations, thus making their owners believe they were growing distinctly poorer. 

In reality the owners were better off with the listed securities, despite the low prices of these.

• For if they had wanted to, or were compelled to, they could at least have sold the issues—possibly to exchange them for even better bargains. 
• Or they could just as logically have ignored the market’s action as temporary and basically meaningless. 

But it is self-deception to tell yourself that you have suffered no shrinkage in value  merely because your securities have no quoted market at all.

Returning to our A. & P. shareholder in 1938, we assert that as long as he held on to his shares he suffered no loss in their price decline, beyond what his own judgment may have told him was occasioned by a shrinkage in their underlying or intrinsic value. 

• If no such shrinkage had occurred, he had a right to expect that in due course the market quotation would return to the 1937 level or better—as in fact it did the following year. 
• In this respect his position was at least as good as if he had owned an interest in a private business with no quoted market for its shares. 
• For in that case, too, he might or might not have been justified in mentally lopping off part of the cost of his holdings because of the impact of the 1938 recession—depending on what had happened to his company.

Ref:  Intelligent Investor by Benjamin Graham

The Investor and Market Fluctuations: The story of the Great Atlantic & Pacific Tea Company Shares (4)

There are two chief morals to this story.

• The first is that the stock market often goes far wrong, and sometimes an alert and courageous investor can take advantage of its patent errors. 
• The other is that most businesses change in character and quality over the years, sometimes for the better, perhaps more often for the worse.  The investor need not watch his companies’ performance like a hawk; but he should give it a good, hard look from time to time.

The Investor and Market Fluctuations: The story of the Great Atlantic & Pacific Tea Company Shares (3)

We see in this history how wide can be the vicissitudes of a major American enterprise in little more than a single generation, and also with what miscalculations and excesses of optimism and pessimism the public has valued its shares.

• In 1938 the business was really being given away, with no takers; 
• in 1961 the public was clamoring for the shares at a ridiculously high price. 
• After that came a quick loss of half the market value, and some years later a substantial further decline. 

In the meantime the company was to turn from an outstanding to a mediocre earnings performer; 

• its profit in the boom-year 1968 was to be less than in 1958;
• it had paid a series of confusing small stock dividends not warranted by the current additions to surplus; and so forth. 
• A. & P. was a larger company in 1961 and 1972 than in 1938, but not as well-run, not as profitable, and not as attractive.*

* The more recent history of A & P is no different.

• At year-end 1999, its share price was $27.875; 
• at year-end 2000, $7.00; 
• a year later, $23.78; 
• at year-end 2002, $8.06. 

Although some accounting irregularities later came to light at A & P, it defies all logic to believe that the value of a relatively stable business like groceries could

• fall by three-fourths in one year, 
• triple the next year, 
• then drop by two-thirds the year after that.

Ref:  Intelligent Investor  by Benjamin Graham

The Investor and Market Fluctuations: The story of the Great Atlantic & Pacific Tea Company Shares (2)

A. & P. shares  were introduced to trading on the “Curb” market, now the American Stock Exchange, in 1929 and sold as high as 494.  

• By 1932 they had declined to 104, although the company’s earnings were nearly as large in that generally catastrophic year as previously. 
• In 1936 the range was between 111 and 131. 
• Then in the business recession and bear market of 1938 the shares fell to a new low of 36.

Sequel and Reflections

The following year, 1939, A. & P. shares advanced to 117 1⁄2, or three times the low price of 1938 and well above the average of 1937. 

• Such a turnabout in the behavior of common stocks is by no means uncommon, but in the case of A. & P. it was more striking than most. 
• In the years after 1949 the grocery chain’s shares rose with the general market 
• until in 1961 the split-up stock (10 for 1) reached a high of 70 1⁄2 which was equivalent to 705 for the 1938 shares.  

This price of 70 1⁄2 was remarkable for the fact it was 30 times the earnings of 1961. 

• Such a price/earnings ratio—which compares with 23 times for the DJIA in that year—must have implied expectations of a brilliant growth in earnings. 
• This optimism had no justification in the company’s earnings record in the preceding years, and it proved completely wrong. 
• Instead of advancing rapidly, the course of earnings in the ensuing period was generally downward.  
• The year after the 70 1⁄2 high the price fell by more than half to 34.   
• But this time the shares did not have the bargain quality that they showed at the low quotation in 1938. 
• After varying sorts of fluctuations the price fell to another low of 211/2 in 1970 and 18 in 1972—having reported the first quarterly deficit in its history.

Ref: Intelligent Investor by Benjamin Graham

The Investor and Market Fluctuations: The story of the Great Atlantic & Pacific Tea Company Shares (1)

The A. & P. Example

At this point we shall introduce one of our original examples, which dates back many years but which has a certain fascination for us because it combines so many aspects of corporate and investment experience. It involves the Great Atlantic & Pacific Tea Co. Here is the story:

A. & P. shares  were introduced to trading on the “Curb” market, now the American Stock Exchange, in 1929 and sold as high as 494.  

• By 1932 they had declined to 104, although the company’s earnings were nearly as large in that generally catastrophic year as previously. 
• In 1936 the range was between 111 and 131. 
• Then in the business recession and bear market of 1938 the shares fell to a new low of 36.

That price was extraordinary.

• It meant that the preferred and common were together selling for $126 million, although the company had just reported that it held $85 million in cash alone and a working capital (or net current assets) of $134 million. 
• A. & P. was the largest retail enterprise in America, if not in the world, with a continuous and impressive record of large earnings for many years. 
• Yet in 1938 this outstanding business was considered on Wall Street to be worth less than its current assets alone—which means less as a going concern than if it were liquidated. 

Why? 

• First, because there were threats of special taxes on chain stores; 
• second, because net profits had fallen off in the previous year; and, 
• third, because the general market was depressed. 
• The first of these reasons was an exaggerated and eventually groundless fear; the other two were typical of temporary influences.

Let us assume that the investor had bought A. & P. common in 1937 at, say, 12 times its five-year average earnings, or about 80.  We are far from asserting that the ensuing decline to 36 was of no importance to him.

• He would have been well advised to scrutinize the picture with some care, to see whether he had made any miscalculations. 
• But if the results of his study were reassuring—as they should have been—he was entitled then to disregard the market decline as a temporary vagary of finance, unless he had the funds and the courage to take advantage of it by buying more on the bargain basis offered.

Ref; Intelligent Investor by Benjamin Graham

Good managements produce a good average market price, and bad managements produce bad market prices.

Market Price Fluctuations:  An Added Consideration

Something should be said about the significance of average market prices as a measure of managerial competence. 

• The shareholder judges whether his own investment has been successful in terms both of dividends received and of the long-range trend of the average market value. 
• The same criteria should logically be applied in testing the effectiveness of a company’s management and the soundness of its attitude toward the owners of the business.

This statement may sound like a truism, but it needs to be emphasized.

• For as yet there is no accepted technique or approach by which management is brought to the bar of market opinion. 

On the contrary, managements have always insisted that they have no responsibility of any kind for what happens to the market value of their shares.

• It is true, of course, that they are not accountable for those fluctuations in price which, as we have been insisting, bear no relationship to underlying conditions and values. 
• But it is only the lack of alertness and intelligence among the rank and file of shareholders that permits this immunity to extend to the entire realm of market quotations, including the permanent establishment of a depreciated and unsatisfactory price level. 

Good managements produce a good average market price, and bad managements produce bad market prices.

The investor with a portfolio of sound stocks should expect their prices to fluctuate

The investor with a portfolio of sound stocks should expect their prices to fluctuate and should

• neither be concerned by sizable declines 
• nor become excited by sizable advances. 

He should always remember that market quotations are there for his convenience,

• either to be taken advantage of or 
• to be ignored. 

He should never 

• buy a stock because it has gone up or 
• sell one because it has gone down. 

He would not be far wrong if this motto read more simply: “Never buy a stock immediately after a substantial rise or sell one immediately after a substantial drop.”

Activities that emphasize price movements first and underlying values second tend to be self-neutralizing and self-defeating over the years.

Aside from forecasting the movements of the general market, much effort and ability are directed on Wall Street toward selecting stocks or industrial groups that in matter of price will “do better” than the rest over a fairly short period in the future. 

Logical as this endeavor may seem, we do not believe it is suited to the needs or temperament of the true investor—particularly since he would be competing with a large number of stock-market traders and firstclass financial analysts who are trying to do the same thing.

As  in all other activities that emphasize price movements first and underlying values second, the work of many intelligent minds constantly engaged in this field tends to be self-neutralizing and selfdefeating over the years.

When to Buy? When Not to Buy? It is far from certain that the typical investor should regularly hold off buying until low market levels appear.

It is far from certain that the typical investor should regularly hold off buying until low market levels appear, because

• this may involve a long wait, 
• very likely the loss of income, and 
• the possible missing of investment opportunities. 

On the whole it may be better for the investor to do his stock buying whenever he has money to put in stocks, except when the general market level is much higher than can be justified by well-established standards of value. 

If he wants to be shrewd he can look for the ever-present bargain opportunities in individual securities.

It is far from certain that the typical investor should regularly hold off buying until low market levels appear

It is far from certain that the typical investor should regularly hold off buying until low market levels appear, because

• this may involve a long wait, 
• very likely the loss of income, and 
• the possible missing of investment opportunities. 

On the whole it may be better for the investor to do his stock buying whenever he has money to put in stocks, except when the general market level is much higher than can be justified by well-established standards of value. 

If he wants to be shrewd he can look for the ever-present bargain opportunities in individual securities.

The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements.

The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements.  

The speculator’s primary interest lies in anticipating and profiting from market fluctuations. 

The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices.

Market movements are important to him in a practical sense, because they alternately create 

• low price levels at which he would be wise to buy and 
• high price levels at which he certainly should refrain from buying and probably would be wise to sell.

Market price fluctuations have only one significant meaning for the true investor.

Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity 

• to buy wisely when prices fall sharply and 
• to sell wisely when they advance a great deal. 

At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.

Do Not Overpay to Own a Company with Brilliant Prospects; Use the Vagaries of the Market to Play the Master Game of Buying Low and Selling High

Growth Stock Paradox: The more successful the company, the greater are likely to be the fluctuations in the price of its shares.

This leads us to a conclusion of practical importance to the conservative investor in common stocks.

• If he is to pay some special attention to the selection of his portfolio, it might be best for him to concentrate on issues selling at a reasonably close approximation to their tangible-asset value—say, at not more than one-third above that figure. 
• Purchases made at such  levels, or lower, may with logic be regarded as related to the company’s balance sheet, and as having a justification or support independent of the fluctuating market prices. 
• The premium over book value that may be involved can be considered as a kind of extra fee paid for the advantage of stock-exchange listing and the marketability that goes with it.

A caution is needed here.

• A stock does not become a sound investment merely because it can be bought at close to its asset value. 
• The investor should demand, in addition, a satisfactory ratio of earnings to price, a sufficiently strong financial position, and the prospect that its earnings will at least be maintained over the years. 

This may appear like demanding a lot from a modestly priced stock, but the prescription is not hard to fill under all but dangerously high market conditions. 


Once the investor is willing to forgo brilliant prospects—i.e., better than average expected growth—he will have no difficulty in finding a wide selection of issues meeting these criteria.



More than half of the DJIA issues met our asset-value criterion at the end of 1970.

• The most widely held investment of all—American Tel. & Tel.—actually sells below its tangible-asset value as we write. 
• Most of the light-and power shares, in addition to their other advantages, are now (early 1972) available at prices reasonably close to their asset values. 

The investor with a stock portfolio having such book values behind it can take a much more independent and detached view of stock-market fluctuations than those who have paid high multipliers of both earnings and tangible assets.


As long as the earning power of his holdings remains satisfactory, he can give as little attention as he pleases to the vagaries of the stock market. 

More than that, at times he can use these vagaries to play the master game of buying low and selling high.

Explanations for the Erratic Price Behaviour of some of the Most Successful and Impressive Enterprises

Growth Stock Paradox: The more successful the company, the greater are likely to be the fluctuations in the price of its shares.

The argument made above should explain the often erratic price behavior of our most successful and impressive enterprises. 

• Our favorite example is the monarch of them all—International Business Machines. The price of its shares fell from 607 to 300 in seven months in 1962–63; after two splits its price fell from 387 to 219 in 1970. 
• Similarly, Xerox—an even more impressive earnings gainer in recent decades—fell from 171 to 87 in 1962–63, and from 116 to 65 in 1970. 

These striking losses 

• did not indicate any doubt about the future long-term growth of IBM or Xerox; 
• they reflected instead a lack of confidence in the premium valuation that the stock market itself had placed on these excellent prospects.