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Durable Competitive Advantage > Intelligent Investor Ch 1-5 > Flashcards

Intelligent Investor Ch 1-5 Flashcards

0
Q

Financial success of your investments

A

Depends more on how you behave, compared to how the market

Behaves

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1
Q

Margin of safety, in a nutshell what does it allow an investor to do?

A

Never overpaying, no matter how exciting an investment seems

Can minimize you odds of error

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2
Q

Defensive investor

A

Places chief emphasis on avoidance of serious mistakes/losses

2nd aim is freedom from effort, annoyance and need to make
Frequent decisions

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3
Q

Determining trait of enterprising investor

A

Devote time and care in selection of securities that are both
Sound and more attractive than average

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4
Q

2 important choices in the art of successful investment

A

1 industries with growth prospects

2 identify most promising companies in those industries

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5
Q

Tangible asset value

A

Includes physical property (property, plant, equipment, inventories)
And financial balances (cash, ST Investments, A/R)

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6
Q

Practical to buy investments selling not far above their tangible asset value. What does this allow?

A

An investor in a company of about their net asset value can
Always consider himself owner of sound and expanding
businesses

Acquired at rational price, regardless of what stock market might
Say to the contrary

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7
Q

How does graham characterize an intelligent investor? 5 things

A 
1 patient
2 disciplined 
3 eager to learn
4 harness emotions
5 independent thinker
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8
Q

What is being an intelligent investor more a matter of?

A

More a Matter of character than brain

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9
Q

How much did the market drop between March 2000 and October 2002? How much wealth was destroyed?

A

The market dropped 50.2% and lost $7.4 trillion

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10
Q

On Wall Street enthusiasm usually leads to…

A

Disaster

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11
Q

Prospects for physical growth in business…

A

Don’t translate into obvious profits for investors

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12
Q

If it seems easy to foresee which industry will grow the fastest, when is there no real value?

A

When most other investors are already expecting the same thing

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13
Q

How investment is distinguished from speculation?

A

Thorough analysis of promises safety of principal and

Adequate return

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14
Q

3 supplementary practices of a defensive investor

A

1 dollar cost averaging

2 placing money in mutual funds

3 25-75% between equities and bonds inversely reacting to the
Market

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15
Q

For a reasonable chance for continued better than average results, that investor must follow policies which are…

A

Inherently sound and promising and not popular on Wall Street

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16
Q

Special situations which over many years could bring over 20% returns at minimal risk include? 3 things

A

1 inter security arbitrages

2 payouts or workouts in liquidations

3 protected hedges

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17
Q

Thorough analysis

A

Study of facts in light of established standards of safety and value

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18
Q

Safety of principal

A

Protection against loss under all normal or reasonably likely
Conditions or variations

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19
Q

Adequate returns

A

Rate of return investor is willing to accept provided he acts with
Intelligence

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20
Q

3 elements of investing

A

1 thoroughly analyze soundness of company and soundness
Of its business
2 deliberately protect yourself against serious losses
3 aspire for adequate, not extraordinary performance

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21
Q

Investors judge the market price by…

A

Established standards of value

Comfortable investing in a stock even if you had no way
Of knowing its Daily price

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22
Q

What do Formulas experience over time

A

Diminishing returns occur especially when published if the

Formula worked in the first place (January effect)

23
Q

Graham’s 3 rules on speculation

A

1 never delude yourself into thinking you’re investing when
You’re speculating
2 speculating becomes mortally dangerous when you’re taking
It seriously
3 put strict limits on amount you’re willing to wager

24
Q

The only way inflation can add to common stock values is by…

A

Raising the rate of earnings on capital investment

25
Q

What is the break down of compounded returns from the s&p from 1915 to 1970?

A

8%, 4% from price appreciation and 4% from reinvested dividends

26
Q

What happened to price levels between 1915 and 1920?

A

They doubled

27
Q

A little inflation

A

Helpful to business profits

28
Q

Inflation and investments

A

It’s important to measure your investment success based on how
Much you keep after inflation

29
Q

What happened to price levels between 1973 and 1982?

A

They more than doubled from $100 to $230

30
Q

Since 1960, 69% of countries have experienced what rate of inflation in a single year?

A

25%

31
Q

What price level changes produce poor stock returns?

A

Deflation and inflation exceeding 6%/year (high inflation causes
Consumers to cut spending)

32
Q

2 suggestions by Jason zweig to fight inflation?

A

Vanguards REIT fund and TIPS

33
Q

3 factors that influence stock market’s performance? With numerical example

A

1 real growth rise of companies earnings and dividends (1.5%)
2 inflationary growth (2.4%)
3 dividend yield on stocks (1.9%)

Stocks can be expected to grow at 5.8% = 1.5 + 2.4 + 1.9, stocks over Longterm will provide 5.8% return

34
Q

Graham’s view on the rate of return an investor should expect

A

Rate of return should be dependent on amount of intelligent

Effort investor brings

35
Q

Call provisions on bonds

A

Usually screw over investor, because they miss out on most of
price Appreciation of bond after company buys it back

Investor should check terms to make sure of period in which the
Bond is not callable

36
Q

What is Graham’s recommendation about callable bonds

A

Investor should sacrifice small amount of yield to obtain the
assurance of noncallability for 20-25 years

37
Q

What do preferred stock dividends depend on?

A

Company’s willingness and ability to pay common stock dividends

38
Q

2 Characteristics preferred stock lacks

A

1 lacks the legal claim of the bond holder (or creditor)

2 lacks the profit possibilities of the common shareholder (or partner)

39
Q

When is the best time to buy preferred stock?

A

When price is unduly depressed by temporary adversity

Should be bought on bargain basis or not at all

40
Q

Tax advantages and disadvantages on preferred stock

A

Corporations pay lower taxes on preferred stock dividends

Individuals pay higher taxes, as they get taxed at ordinary
Income rates

41
Q

When is a preferred stockholder entitled to a dividend?

A

Before common stock dividends are payed

42
Q

Income bond interest

A

Interest does not have to be paid unless earned by the company

Unpaid interest may accumulate as a charge against future
Earnings, but the period is often limited to 3 years

43
Q

What are income bonds associated with

A

Financial weakness and poor investment status

44
Q

2 benefits that an investor should find in a good income bond investment

A

1 unconditional right to receive interest payments when they are
Earned by the company

2 right to other forms of protection than bankruptcy proceedings
If interest is not earned and paid

45
Q

Chief benefit to companies that issue income bonds

A

Deductibility of interest paid from company’s taxable income

Cuts the form of cost of capital in half

46
Q

Tax on treasury securities

A

Subject to federal but free from state

47
Q

Best annuities, where are they bought?

A

Ameritas, TIAA-CREF and Vanguard

48
Q

Graham’s recommended diversification of stocks for the defensive investor

A

10 to 30 stocks

49
Q

Defensive investor 4 aspects of common stock investing

A

1 diversification
2 select large prominent companies
3 10 year consecutive history of dividend payments
4 investor should not overpay

50
Q

How does a defensive investor not overpay for a stock?

A

Never pay more than 25 times average earnings over 7 years

And no more than 20 times earnings over last 12 month period

51
Q

Growth stocks

A

The stock price always grows a lot faster than earnings, when
Earnings disappoint the price drops a lot faster

52
Q

The kind of securities purchased and the rate of return sought by the investor depend on…, what do they not depend on?

A

His financial equipment in terms of knowledge, experience
And temperament

Do not depend on his resources

53
Q

What is the primary risk for a Longterm stockholder?

A

The underlying business will lose money

54
Q

When are an industrial company’s finances considered conservative?
When is this true for railroad or public utility?

A

Common stock at book value represents at least half of total
Capitalization, including all bank debt

30% for railroads or public utility

55
Q

As of 2003, large cap companies had market caps of?

A

$10 billion

56
Q

Even if you feel familiar with a company because it’s local, or your employer you still need to…

A

Research it’s financial statements

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