Benjamin Graham laid the foundation for value investing, which Warren Buffett built on. But along the way, the architectural design underwent some significant changes. Warren Buffett calls Graham’s The Intelligent Investor “by far the best book on investing ever written” and particularly commends chapters 8 and 20, which deal with the investor and market fluctuations and with the concept of buying securities with a “margin of safety”. While value investors are advised not to, it may be interesting to enter into the realm of speculation, and wonder what Warren Buffett would change if he ever edited the The Intelligent Investor.
He may choose to rewrite parts of chapter 7 dealing with the purchase of “bargain issues” for enterprising investors and could well elaborate: “If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long-term performance of the business may be terrible… Unless you are a liquidator, this kind of approach to buying businesses is foolish. First, the original “bargain” price will probably not turn out to be such a steal after all… there is never just one cockroach in the kitchen. Second, any initial advantage you secure will be quickly eroded by the low return the business earns.”
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He probably will not fully agree with certain parts of chapter 14 with its emphasis on the quantitative approach and diversification for the defensive investor. The Oracle of Omaha would add, “We are searching for operations we believe are certain to possess enormous competitive strength 10 or 20 years from now… When we own portions of outstanding businesses with outstanding management, our favourite holding period is forever… We believe a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort level he must feel with its economic characteristic before buying into it.”