The Intelligent Investor: The Definitive Book On Value part 14. The purpose of this book is to supply, in a form suitable for laymen, guidance in the adoption and execution of an investment policy. Comparatively little will be said here about the technique of analyzing securities; attention will be paid chiefly to investment principles and investors’ attitudes. We shall, however, provide a number of condensed comparisons of specific securities - chiefly in pairs appearing side by side in the New York Stock Exchange list in order to bring home in concrete fashion the important elements involved in specific choices of common stocks | 116 The Intelligent Investor course since growth stocks have long sold at high prices in relation to current earnings and at much higher multiples of their average profits over a past period. This has introduced a speculative element of considerable weight in the growth-stock picture and has made successful operations in this field a far from simple matter. The leading growth issue has long been International Business Machines and it has brought phenomenal rewards to those who bought it years ago and held on to it tenaciously. But we have already pointed out that this best of common stocks actually lost 50 of its market price in a six-months decline during 1961-62 and nearly the same percentage in 1969-70. Other growth stocks have been even more vulnerable to adverse developments in some cases not only has the price fallen back but the earnings as well thus causing a double discomfiture to those who owned them. A good second example for our purpose is Texas Instruments which in six years rose from 5 to 256 without paying a dividend while its earnings increased from 40 cents to per share. Note that the price advanced five times as fast as the profits this is characteristic of popular common stocks. But two years later the earnings had dropped off by nearly 50 and the price by four-fifths to The reader will understand from these instances why we regard growth stocks as a whole as too uncertain and risky a vehicle for the defensive investor. Of course wonders can be accomplished with the right individual selections bought at the right levels and later sold after a huge rise and before the probable decline. But the average investor can no more expect to accomplish this than to find money growing on trees. In contrast we think that the group of Graham makes this point on p. 73. t To show that Graham s observations are perennially true we can substitute Microsoft for IBM and Cisco for Texas Instruments. Thirty years apart the results are uncannily similar .
