The Intelligent Investor: The Definitive Book On Value part 55. 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 | 526 Commentary on Chapter 20 Klingenstein of Wertheim Co. answered simply Don t lose. 1 This graph shows what he meant FIGURE 20-1 The Cost of Loss Value of 10 000 investment Years 5 return every year 50 loss in year one 10 gain every year thereafter Imagine that you find a stock that you think can grow at 10 a year even if the market only grows 5 annually. Unfortunately you are so enthusiastic that you pay too high a price and the stock loses 50 of its value the first year. Even if the stock then generates double the market s return it will take you more than 16 years to overtake the market-simply because you paid too much and lost too much at the outset. Losing some money is an inevitable part of investing and there s nothing you can do to prevent it. But to be an intelligent investor you must take responsibility for ensuring that you never lose most or all of your money. The Hindu goddess of wealth Lakshmi is often portrayed standing on tiptoe ready to dart away in the blink of an eye. To keep her sym 1 As recounted by investment consultant Charles Ellis in Jason Zweig Wall Street s Wisest Man Money June 2001 pp. 49-52. Commentary on Chapter 20 527 bolically in place some of Lakshmi s devotees will lash her statue down with strips of fabric or nail its feet to the floor. For the intelligent investor Graham s margin of safety performs the same function By refusing to pay too much for an investment you minimize the chances that your wealth will ever disappear or suddenly be destroyed. Consider this Over the four quarters ending in December 1999 JDS Uniphase Corp. the fiber-optics company generated 673 million in net sales on which it lost 313 million. Its tangible assets totaled billion. Yet on March 7 2000 JDS Uniphase s stock hit 153 a share giving the company a total market value of roughly 143 And then like most New Era stocks it crashed. Anyone who bought it that day and still clung to it at the end of 2002 faced these prospects FIGURE 20-2 .
