Q&A: The Intelligent Investor – Chapter 13: A Comparison of Four Listed Companies

The Intelligent InvestorBelow are my reflections and answers to the discussion questions posted at Modern Graham for chapter 13 – A Comparison of Four Listed Companies – of the Intelligent Investor written by Benjamin Graham.

1. What quote from this chapter do you think best summarizes the point Graham is making?

 “High valuations entail high risks.”

2. When considering potential investments against one another, what factors do you utilize in analysis?

Some of the factors are:

  • Long-term economic characteristics of the business.
  • Management and capital allocation.
  • Industry characteristics.
  • Purchase price of the business compared to the calculation of intrinsic business value.

3. What do you think of Amazon, Intel, Netflix, and/or Wells Fargo?

Amazon, I would say, is a very interesting business. Have been thinking for some time that I should start reading more about Amazon, to improve my understanding of the business. Seems like a great business, the question is if it also will prove to be a great investment going forward? How much of the expenses today are growth expenditures or not? I guess that is one of the big questions when it comes to being able to have an opinion about whether the current stock price is way too high or not.

Intel looks like a great business. Haven’t read a lot about it, so I cannot say that much. The big question here, I guess, is how they will get into the growth available in the smartphone and tablet markets? But as I said, haven’t read a lot about it, so I cannot say at this moment.

Subscribed to Netflix a year back or so, but the supply was not that good back then. That’s the main reason I don’t use it today. Maybe that has changed, I don’t know. Maybe a good business, but does not feel like a great one.

Wells Fargo is a company that I truly like and admire and that I would be interested to invest in. Read the most recent shareholder letter a few months ago, written by John G. Stumpf (Chairman, President and Chief Executive Officer, Wells Fargo & Company) and I really liked it.

4. What four companies would you compare today?

Linear Technology, Verizon, Abbott Laboratories and Oracle.

5. What did you think of the chapter overall?

A good one. Comparing different companies to each other is an interesting way to learn more about companies, and also to see the big differences between different businesses and industries.

Also liked this quote: “Thus, to a substantial extent, common-stock investment policy must depend on the attitude of the individual investor.”

The chief elements of performance from which the comparison of the four listed companies was done is something I will kept at hand when trying to do any comparisons of companies on my own in the future:

  1. Profitability
  2. Stability
  3. Growth
  4. Financial position
  5. Dividends
  6. Price History

Also, the seven statistical requirements, summarized as follows (to be developed in the next chapter):

  1. Adequate size.
  2. A sufficiently strong financial condition.
  3. Continued dividends for at least the past 20 years.
  4. No earnings deficit in the past ten years.
  5. Ten-year growth of at least one-third in per-share earnings.
  6. Price of stock no more than 1.5 times net asset value.
  7. Price no more than 15 times average earnings of the past three years.

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