Book: The Intelligent Investor

The Book


Benjamin Graham, The Intelligent Investor
Revised Edition 1973

Commentary by Jason Zweig
Preface by Warren E. Buffett

Available at

Common-Stock Analysis

The now-standard procedure for estimating future earning power starts with average past data for physical volume, prices received, and operating margin. Future sales in dollars are them projected on the basis of assumptions as to the amount of change in volume and price level over the previous base. These estimates, in turn, are grounded first on general economic forecasts of gross national product, and then on special calculations applicable to the industry and company in question.

Page 288

Dividend yields

No intelligent investor, no matter how starved for yield, would ever buy a stock for its dividend income alone; the company and its businesses must be solid, its stock price must be reasonable.

Page 111

Buying a bond only for its yield is like getting married only for the sex. If the thing that attracted you in the first place dries up, you'll find yourself asking, “What else is there?” When the answers is “Nothing,” spouses and bondholders alike end up with broken hearts.

Jason Zweig, page 146

Flattening earning cycles

The investor should impose some limit on the price he will pay for an issue in relation to its average earnings over, say, the past seven years. We suggest that this limit be set at 25 times such average earnings, and no more than 20 times those of the last twelve-month period.

Page 115

News you could use

(…T)he anchorman announces brightly, «Stocks became more attractive yet again today, as the Dow dropped another 2.5% on heavy volume — the fourth day in a row that stocks have gotten cheaper. Tech investors fared even better, as leading companies like Microsoft lost early 5% on the day, making them even more affordable. That comes on top of the good news of the past year, in which stocks have already lost 50%, putting them at bargain levels not seen in years. And some prominent analysts are optimistic that prices may drop still further in the weeks and months to come. (…)»

Falling stock prices would be fabulous news for any investor with very long horizon

Jazon Zweig, page 222

Simplified Formula

Value = Current (Normal) Earnings X ( 8.5 + twice the expected annual growth rate )

Page 295

The growth figure should be that expected over the next seven to ten years. For example:

Expected growth rate 0.0% 2.5% 5.0% 7.2% 10.0% 14.3% 20.0%
Growth in 10 years 0.00 28.0% 63.0% 100.0% 159.0% 280.0% 319.0%
Multiplier in current earnings 8.5 13.5 18.5 22.9 28.5 37.1 48.5

Minimum Coverage for Bonds

The chief criterion used for corporate bonds is the number of times that total interest charges have been covered by available earnings for some years in the past

Page 283

  • For investment-grade bonds:
Type of enterprise Average of past 7 years Alternative measured by «Poorest Year» Average of past 7 years after income taxes Alternative measured by «Poorest Year» after income taxes
Public-utility 4 times 3 times 2.65 times 2.10 times
Railroad 5 times 4 times 3.20 times 2.65 times
Industrial 7 times 5 times 4.30 times 3.20 times
Retail concern 5 times 4 times 3.20 times 2.65 times


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