Ben Graham's approach in the modern world

[ERICOPOLY]

I was reading Munger's topic on The Art of Stock Picking.

 

He says that Graham's approach of using liquidation value worked because you could easily layoff workers and the working capital belonged to the owners.

 

Today, he says it's different because "the accounting is not realistic because the minute the business starts contracting, significant assets are not there".

 

See page 13 of 18:

http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Charlie%20Munger/Charlie%20Munger%20_%20Art%20of%20Stock%20Picking.pdf

 

 

[blainehodder]

I read that as well, but netnet investing seems to still work pretty well anyway.  Maybe the true margin of safety never derived from the fact that it could be extracted.  While it may not be useful for people managing large amounts of capital, it is hard to argue with results.

 

I think this is one of the best articles on investing ever.  Great post.  You can find it formatted a little nicer on hacker news.

 

http://ycombinator.com/munger.html

 

 

[stahleyp]

I've not read this yet, but your post reminded me of this book, Eric.

 

http://www.amazon.com/What-Would-Ben-Graham-Now/dp/0132173239

[Yours Truly]

I loved this part:

 

"And once we'd gotten over the hurdle of recognizing that a thing could be a bargain based on quantitative measures that would have horrified Graham, we started thinking about better businesses.

 

And, by the way, the bulk of the billions in Berkshire Hathaway have come from the better businesses. Much of the first $200 or $300 million came from scrambling around with our Geiger counter. But the great bulk of the money has come from the great businesses.

 

And even some of the early money was made by being temporarily present in great businesses. Buffett Partnership, for example, owned American Express and Disney when they got pounded down."

[Yours Truly]

The part that resonated most for me:

 

"How do you get into these great companies? One method is what I'd call the method of finding them small get 'em when they're little. For example, buy Wal-Mart when Sam Walton first goes public and so forth. And a lot of people try to do just that. And it's a very beguiling idea. If I were a young man, I might actually go into it.

 

But it doesn't work for Berkshire Hathaway anymore because we've got too much money. We can't find anything that fits our size parameter that way. Besides, we're set in our ways. But I regard finding them small as a perfectly intelligent approach for somebody to try with discipline. It's just not something that I've done."

[stahleyp]

Eric, where have you been lately, man? I haven't seen you post in a while!