The Intelligent Investor: The Definitive Book On Value part 32. 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 | TABLE 11-4 Annual Earnings Multipliers Based on Expected Growth Rates Based on a Simplified Formula Expected growth rate Growth in 10 years Multiplier of current earnings TABLE 11-5 Implicit or Expected Growth Rates December 1963 and December 1969 Projected Earned Actual Annual Projected P E Ratio Growth Rate Per Share Growth P E Ratio Growth Rate Issue 1963 1963 1963 1969 1963-1969 1969 1969 American Tel. Tel. X X General Electric General Motors IBM International Harvester Xerox 38c DJIA a Based on formula on p. 295. b Average of 1968 and 1970 since 1969 earnings were reduced by strike. c Adjusted for stock splits. Security Analysis for the Lay Investor 297 pares with an actual annual increase of compounded between 1951-1953 and 1961-1963. We should have added a caution somewhat as follows The valuations of expected high-growth stocks are necessarily on the low side if we were to assume these growth rates will actually be realized. In fact according to the arithmetic if a company could be assumed to grow at a rate of 8 or more indefinitely in the future its value would be infinite and no price would be too high to pay for the shares. What the valuer actually does in these cases is to introduce a margin of safety into his calculations somewhat as an engineer does in his specifications for a structure. On this basis the purchases would realize his assigned objective in 1963 a future overall return of 7M per annum even if the growth rate actually realized proved substantially less than that projected in the formula. Of course then if that rate were actually realized the investor would be sure to enjoy a handsome additional return. .
