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Security Analysis, WWIII, And The Business Owner's Perspective

Talking about finding a gem-My wife and I was traveling the South Carolina countryside near the Georgia border when we discovered a used bookstore along the side of the road. While looking around, lo and behold in the furthest most difficult to reach corner of the store at the edge of the business section, sat an original copy of the third edition of Security Analysis written by investing legends Ben Graham and David Dodd with the help of utility analyst Charles Tatham, Jr. The book was published in 1951 and provides invaluable insights on how to analyze stocks and bonds, how to weigh them in the context of macro-economics, employing the margin of safety, buying stocks below intrinsic value and thinking rationally about publicly traded companies as a whole.

I gladly paid the $3 for the book feeling a little guilty about depriving someone else of invaluable knowledge. In the preface to the third edition I found this interesting paragraph that is reflective of the mood of the time but some of which can actually be applied to modern investment thinking:

"This preface is being written when the possibility of a third world war weighs heavily on all our minds. We need say only a word about this unhappy subject in relation to our present work. The effect of such a war upon ourselves and our institutions is incalculable. But in the field of security analysis we need consider only its bearing on the choice between various securities and between securities and (paper) money. It seems sufficient to observe that since war and inflation are inseparable, paper money and securities payable in specific amounts of paper money would seem to offer less financial or basic protection than soundly chosen common stocks, representing ownership of tangible, productive property."

Here's what I take away:

While a World War would mostly likely drive many companies into bankruptcies depriving investors of their rights to underlying assets it's important for investors to think of a share of stock as a partial ownership of a business that produces free cash flow for the investor regardless of the denomination. Also, ownership of a business can mean potential profit regardless of the ruling government (as long as its business friendly) and currency denomination. This is how I interpret it.

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