The Intelligent Investor: The Definitive Book On Value part 43. 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 | 406 The Intelligent Investor TABLE 16-2 Price Record of Preferred Stocks Common Stocks and Warrants December 1970 versus December 1968 Based on Random Samples of 20 Issues Each Straight Preferred Stocks Convertible Preferred Stocks Listed Common Stocks Listed Warrants Rated A or Better Rated Below A Advances 2 0 1 2 1 Declines 0-10 3 3 3 4 0 10-20 14 10 2 1 0 20-40 1 5 5 6 1 40 or more 0 0 9 7 18 Average declines 10 17 29 33 65 Standard Poor s composite index of 500 common stocks declined . comparisons would demonstrate that convertible securities as a whole have relatively poor quality as senior issues and also are tied to common stocks that do worse than the general market except during a speculative upsurge. These observations do not apply to all convertible issues of course. In the 1968 and 1969 particularly a fair number of strong companies used convertible issues to combat the inordinately high interest rates for even first-quality bonds. But it is noteworthy that in our 20-stock sample of convertible preferreds only one showed an advance and 14 suffered bad declines. Recent structural changes in the convertible market have negated some of these criticisms. Convertible preferred stock which made up roughly half the total convertible market in Graham s day now accounts for only an eighth of the market. Maturities are shorter making convertible bonds less volatile and many now carry call protection or assurances against early redemption. And more than half of all convertibles are now investment grade a significant improvement in credit quality from Graham s time. Thus in 2002 the Merrill Lynch All . Convertible Index lost -versus the loss of the S P 500-stock index and the decline in the NASDAQ Composite stock index. Convertible Issues and Warrants 407 The conclusion to be drawn from these figures is not that convertible issues are in themselves less desirable than nonconvertible or straight securities. Other things being equal the .
