Security Analysis by Ben Graham and David Dodd is a must read for anyone serious about value investing. Here follows a review of the first chapter.
- Inadequate or Incorrect Data
- Uncertainties of the Future
- Irrational Market Behaviour
A model suggesting the relationship between intrinsic value and market value is discussed, attempting to show how market prices are influenced by a variety of factors unrelated to intrinsic value (e.g. psychological factors).
Finally, arguments are made against "speculation" as opposed to investing. In speculation, there are far more elements of chance involved, which make it unclear whether success is the result of sound behaviour or the result of chance. Frequent trading also results in high fees...the odds are thus stacked in favour of the house, as it is on a roulette table.
Onto Chapter 2