Security Analysis and Portfolio Management

Investments Introduction
Investment defines as
“Sacrificing something now for the prospect of
gaining something later.”
Three dimension
• Time
• Today’s Sacrifice
• Prospective gain

"An investment operation is one which, upon

thorough analysis promises safety of principal
and an adequate return. Operations not meeting
these requirements are speculative."
Investment Attributes
• Rate of Return
• Risk
• Marketability
• Tax Shelter
• Convenience or Liquidity
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Security Analysis and Portfolio Management

Investment Constraints
• Liquidity
• Age
• Need for Regular Income
• Time Horizon
• Risk Tolerance
• Tax Liability
Investment Versus Speculation
• Planning
• Risk Disposition
• Return Expectation
• Basis for Decision
• Leverage
• Timings
You are probably an investor if:
• Buying a portfolio of quality issues at a reasonable
price.
• Focus on the best value issues of the type for
superior returns.

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Security Analysis and Portfolio Management

• The portfolio is made up of issues with a strong

track record,
• Justify your purchase with reasonable projections of
profits
• You buy something because the price has fallen
temporarily
• You sell because of deteriorating fundamentals in
the investment, or you need the cash for something
meeting your buy criteria even more closely.
• You keep a close eye on those who manage your
investments
• Tax efficiency is important, and you take after-tax
returns into account
You are probably a good speculator if:
• You understand the risk and are taking positive

measures to limit that risk.

• You are taking steps to bring about a higher return

than average
• You anticipate a price increase but have a plan in

place in case it doesn't.

• You track a large amount of information

• You are well tuned with the pulse of the market

• You buy at the early signs of upturn after the price

has fallen
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Security Analysis and Portfolio Management

• You are mindful of the overall trend in prices.

• You buy the best value investment of its type during
a boom.
• You buy something with the strongest upward price
momentum.
• You sell because you notice a trend change.
• You don't trust anyone else with your money,

You are probably a mug speculator if:

• You verbally acknowledge risk but ignore it,

• You are buying something because someone you

know told you it is good.

• You have absolutely no idea what else is out there

because you haven't really checked, but this one

looks good.
• You think it is a sure thing to go up.

• You buy something that has fallen a lot because you

don't think the price can go any lower.

• Mitali Mukharjee says on CNBC TV18 that She

"likes ONGC a lot" so you buy it.

• You don't understand how people make money in

the investment.
• You will pay anything for an investment because

prices are booming.

• You buy because it has gone up a lot.

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 Security Analysis and Portfolio Management

“I read the first edition of this book early in 1950, when I was
nineteen. I thought then that it was by far the best book about
investing ever written. I still think it is.”Warren Buffett
Benjamin Graham Warren Buffet

An Economist and Investor An Investor

May 8, 1894 – August 30, 1930
September 21, 1976
The Father of Security 13 years old, Buffett filed his
Analysis first income tax return,
deducting his bicycle as a work
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Security Analysis and Portfolio Management
expense for $35.

Wrote first edition 15 years old, In his senior year

of The Intelligent of high school, Buffett and his
Investor in 1949 friend spent $25 to purchase a
used pinball machine, which
they placed in a barber shop.
Within month, they owned three
machines in different locations.

In 1950, a student 20 years old Buffett applied for

named Warren admission to Harvard Business
Buffett enrolled in School but was turned down,
graduate school at Buffett enrolled at Columbia
Columbia to study Business School after learning
under Graham, later that Benjamin Graham and
hired Buffett in David Dodd, two well-known
1954 securities analysts, taught there.

Major influence in Buffett graduated from

the development of Columbia and wanted to work
the Chartered on Wall Street. Both his father
Financial Analyst and Ben Graham urged him not
(CFA) Certification to. Buffett offered to work for
Graham for free but Graham
refused. He purchased a Sinclair
Texaco gas station as a side
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Security Analysis and Portfolio Management
1. An earnings-to-price
yield at least twice the
AAA bond yield.
2. A P/E ratio less than
40% of the highest P/E
ratio the stock had over
the past five years.
3. A dividend yield of
at least two-thirds the
AAA bond yield.
4. Stock price below
two-thirds of tangible
book value per share.
5. Stock price below
two-thirds "net current
asset value."
investment, but that venture did
not work out as well as he had
hoped. Meanwhile, he worked
as a stockbroker. During that
time, Buffett also took a Dale
Carnegie public speaking
course. Using what he learned,
he felt confident enough to
teach a night class at the
University of Nebraska,
"Investment Principles." The
average age of the students he
taught was more than twice his
own.
24 years old Benjamin Graham
offered Buffett a job at his
partnership with a starting
salary of $12,000 a year. Here,
he worked closely.
32 years old Buffett becomes a
millionaire because Buffett's
partnerships, in January 1962,
had in excess of $7,178,500 of
which over $1,025,000
belonged to Buffett.
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 Security Analysis and Portfolio Management

75 years old Buffett announced

INVESTMENT VS. in June that he would gradually
SPECULATION give away 85% of his Berkshire
holdings to five foundations in
"An investment annual gifts of stock, starting in
operation is one July 2006. The largest
which, upon contribution will go to the Bill
thorough analysis, and Melinda Gates Foundation
promises safety of
principal and a
satisfactory return."

Did you know $500 contributed yearly compounded at 25%

for 27 yrs = over $1 million !

Great Stock Investors.

* 29% for 37 yrs. - George Soros

* 21% for 40 yrs. - Warren Buffett
* 29% for 18 yrs. - Eddie Lampert
* 29% for 18 yrs. - Peter Lynch
* 24% for 13 yrs. - Jim Cramer
* 15% for 20 yrs. - Benjamin Graham

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Security Analysis and Portfolio Management

Top billionaires for the year 2008

No. Name Net worth Age Citizenship Residence Sources of

(USD) wealth
1▲ Warren $62.0 billion ▲ 77 United United Berkshire
Buffett States States Hathaway
2▲ Carlos Slim $60.0 billion ▲ 68 Mexico Mexico Telmex,
Helú América
Móvil
3▼ Bill Gates $58.0 billion ▲ 52 United United Microsoft
States States
4▲ Lakshmi $45.0 billion ▲ 57 India United Arcelor
Mittal Kingdom Mittal
5▲ Mukesh $43.0 billion ▲ 50 India India Reliance
Ambani Industries
6▲ Anil Ambani $42.0 billion ▲ 48 India India Anil
Dhirubhai
Ambani
Group

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Security Analysis and Portfolio Management

No. Name Net worth Age Citizenship Residence Sources

(USD) of
wealth
7▲ Rinat $31.1 billion ▲ 41 Ukraine Ukraine SCM
Akhmetov Holdings
8▼ Ingvar $31.0 billion ▼ 81 Sweden Switzerland IKEA
Kamprad
and family
9▲ Kushal Pal $30.0 billion ▲ 76 India India DLF
Singh Group
10▲ Oleg $28.0 billion ▲ 40 Russia Russia Rusal
Deripaska

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