Security Analysis Series: Chapter 3 Summary

“Sources of Information”

Chapter Summary

  • Annual reports are the greatest source of information an investor can access due to the Income Statement, Balance Sheet, and MD&A.
  • The Income Statement is not complete without…
    • Sales, net earnings, depreciation, interest charges, non-operating income, income taxes, dividends paid, and surplus adjustments.
  • The Balance Sheet is generally thought to be complete, in the sense that companies don’t pick and choose what they present.
    • This doesn’t imply by any means the the Balance Sheet is impervious, as shifting of values via accounting policies is a frequent way to alter the view of financial data, for better or for worse. (pg 96).
  • Alternative sources of information are available if you look. Graham cites rating agencies, other official reports, and direct requests for information from the companies.

Chapter Analysis and Thoughts

  • Sadly, much of this chapter is largely irrelevant today simply due to the discrepancy between the date of authorship and modern times. The advent of the internet has allowed for extreme ease of access to information. If Graham was rejecting value-investing techniques as a method of earning extra returns by the 1970’s, he would be rolling in his grave if he knew how the internet has theoretically made markets that much more efficient… But have they truly done so?
  • The last source, “direct requests for information”, is of important note. I am not aware of the willingness of companies to offer detailed information to investors who request it, however, there certainly is no harm in trying. And additionally, those that offer the information at request must be given some level of credit for their honesty as compared to those who reject the same requests.
  • As mentioned before, the internet offers a massive wealth of information. One can find investing takes on any kind of company. Thus it seems, these days, a key aspect of securities analysis is selecting and screening information to decide what is relevant, and what is truthful.
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