Piramal Healthcare to acquire 5.5% stake in Vodafone Essar

Piramal Healthcarehas entered into an agreement with Vodafone Group to pick up a 5.5% stake in Vodafone-Essar. It will buy this stake from Essar Group company ETHL Communications Holdings, for around Rs 2,856 crore.

The transaction follows the settlement between Vodafone and Essar over the sale of Essar's approximately 33% stake in Vodafone-Essar, which was announced on July 1, 2011.

Markets - sensex to go north of 22000

A leading research house has recently stated that India is the place to be for long term investors. It has even given huge forecasts for the sensex to go north of 22000 levels by the end of the current year. It has based these assumptions on the fact that India has now identified its core problems and is publicly discussing the same. The core problem here refers to the infrastructure bottlenecks in the country. The research house opines that the first step to solving a problem is identifying and discussing the same. As Indian leaders have taken this first step, the problems will therefore be resolved and this makes India the ideal investment destination for long term investors. 

Another school of thought begs to differ from this view. They feel that the problems in India go further than the infrastructure bottlenecks. The recent spate of scandals and scams has put a serious question mark on the governance in the country. Add to these ambiguous tax laws, rigid rules and regulations, policies that change overnight to suit populist view and the business environment becomes almost hostile. The recent cases of the Cairn-Vedanta deal as well as the POSCO deal go on to highlight these problems. 

True that India has several problems. Some of these can be quantified as short term problems. But unfortunately they have been around for a very long time. At times like these, Indian politicians need to stop bickering among themselves. They need to wake up and take a solid stance on policy reforms that reinforces the belief and confidence in the business community. Once this happens, India would definitely yield the superlative returns that long-term investor seek. 

Investing in Indian Stock Markets - Is India headed into a recession? - The 5 Minute Wrapup - Equitymaster.com

Investing in Indian Stock Markets - Is India headed into a recession? - The 5 Minute Wrapup - Equitymaster.com

Markets

A bull market in equities has never been smooth. It is always marked by many corrections, all of which provide investors opportunities to buy into stocks. Especially those that they missed out on the previous rally. And this same logic applies to gold as well. The status of the US dollar and the paper currencies in general has increasingly been questioned in the wake of dubious monetary policies by governments of the developed world. Against this backdrop, gold will continue to evince considerable interest. Hence, the fundamentals supporting the rally in gold look strong. And a correction in this yellow metal should be looked upon by investors as an opportunity to lap up more of this precious metal. Do you think that the gold rally is showing signs of slowing down?

"A business or stock is not an intelligent purchase simply because it is unpopular; a contrarian approach is just as foolish as a follow-the-crowd strategy. What's required is thinking rather than polling. Unfortunately, Bertrand Russell's observation about life in general applies with unusual force in the financial world: 'Most men would rather die than think. Many do." - Warren Buffett.
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Value Investing

India, China both boast of huge populations, running into billions. Despite the favorable demographics, the question is whether the working population is actually talented? Well, as today's chart of the day shows, the BRIC nations feature very dismally in the Economist Intelligence Unit's Global Talent Index. China and India are ranked no. 33 and no. 35 respectively. No other nation in the world is growing as quickly as these two countries. Multinational companies looking to set up shop are frantically looking for talent. But, an adequate pipeline of employees equipped to step into the breach is just not available. The US on the other hand takes the no. 1 spot on account of its top universities. One in three colleges, in the US is ranked in the top 500 globally. These colleges churn out graduates who are well prepared to take on the world.
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Compensation Concept

CONCEPT OF FAIR WAGES:

Fair wages is the wage which is above the minimum wage but below the living wage. Obviously the lower limit of the fair wage is the minimum wage and the upper limit is set by the ability of the industry to pay. Between these two limits, fair wages should depend on the factors like –

1.    Prevailing rates of wages in the same occupation

2.    Prevailing rates of wages in the same region or neighbouring areas

3.    Employers ability to pay

4.    Level of national income and its distribution

5.    Productivity of labour

6.    Status enjoyed by the industry in the economy

               Hence it can be said that fair wages are determined on industry cum region basis.  When fair wages are paid employees enjoy higher standard of living. It is accepted fact that wages must be fair and reasonable. Wages is fair when the employee is able to meet its essential needs and enjoy reasonable standard of living.  ”Equal pay for equal work” serves as base of fair wage.

                According to Encyclopaedia of social science,”Fair wages are equal to those received by the workers performing work of equal skill, difficulty or unpleasantness.”

How to manage Risk

While one cannot completely avoid market risks, one can take a number of steps to manage and minimize them.

• Diversify:

As in the case of business risks, market risks can be mitigated to a certain extent by diversification - not just at the product or sector level, but also in terms of region (domestic and foreign) and length of holdings (short- and long-term). One can spread his international risk by diversifying his investment over several different countries or regions.

• Research:

Learn about the forces that can impact your investment. Stay abreast of global economic trends and developments. If you are considering investing in a particular sector, for example, aerospace, read about the future of the aerospace industry. If you are thinking about investing in foreign securities, learn as much as you can about the market history and volatility, socio-political stability, trading practices, market and regulatory structure, arbitration and mediation forums, restrictions on international investing and repatriation of investment.

Learn more about the various types of investments options available to you and their risk levels. Inflation risk can be managed by holding products that provide purchasing power protection, such as inflation-linked bonds. 

HOW DOES ASSET ALLOCATION WORK

Asset allocation planning can range from the relatively simple to the complex. It can range from generic recommendations that have no relevance to your specific needs (dangerous) to recommendations based on sophisticated computer techniques (very reliable although far from perfect). Between these extremes, it can include recommendations based only on your time horizon (still risky) or on your time horizon adjusted for your risk tolerance (less risky) or any combination of factors.

Computerized asset allocations are based on a questionnaire you fill out. Your answers provide the information the computer needs to become familiar with your unique circumstances. From the questionnaire will be determined:

• Your investment time horizon (mainly, your age and retirement objectives).
• Your risk threshold (how much of your capital you are willing to lose during a given time frame), and
• Your financial situation (your wealth, income, expenses, tax bracket, liquidity needs, etc.).
• Your goals (the financial goals you and your family want to achieve).

The goal of the computer analysis is to determine the best blend of asset classes, in the right percentages, that will match your particular financial profile.

At this point, the "efficient frontier" concept comes into play. It may sound complex, but it is a key to investment success.

Alternative way for Retirement Planning....

Reverse mortgage is proving to be a boon for senior citizens who are finally able to leverage the power of their property, 

At 80, retired Professional Vipul Trivedi had no other option but to survive on the Rs4600 pension that he received every month. Single, having never married, his only asset was the 2-bhk flat in the western suburb of Malad in Mumbai.

“Groceries, bills, maids, festivals and birthdays of relatives; at the end of the month I am left with nothing,” he says. Trivedi, however, has seen a new option emerge in the last few months — one that revolves around his 550 sq ft flat but doesn’t involve selling it.

Banks call it reverse mortgage and it was Finance Minister P Chidambaram’s brainchild. Reverse mortgage is aimed at senior citizens like Trivedi, who don’t want to exercise the option of an outright sale but still want to encash the value their properties have acquired over the years. “I have made enquires with the Punjab 

National Bank (PNB) for the scheme. As per my calculations I should get about Rs 11000 every month from the scheme. Then I could even save some money,” says Trivedi, whose flat has been valued at Rs 50 Lakhs.

What exactly is reverse mortgage and how is it different from a mortgage? S Sridhar, chairman and managing director of National Housing Bank (NHB), explains it thus:

“Reverse Mortgage Loan (RML) seeks to enable house owning senior citizens, who are above 60 years, to meet their financial needs without selling their property. The reverse mortgage is so named because the payment stream is “reversed” i.e. instead of the borrower making monthly payments to a lender (as in a conventional mortgage), a lender makes payments to the borrower.”

Currently offered by only Dewan Housing Finance Ltd, a housing finance company, and Punjab National Bank, the main aim behind launching reverse mortgage in India was the need to financially empower the 76,622,321 senior citizens of the country, who as per the 2001 census would form more than 10 per cent of India’s population by 2016.

Participatory Notes

Participatory notes (PNs) are instruments used by foreign funds, not registered in India, for trading in thedomestic market. They are a derivative instrument issued against an underlying security that permits the holder, some of whom may not be eligible to trade in Indian stock markets, to get a share in the income from the underlying security.

The investors, who buy PNs, deposit their funds in the US or European operations of the FII, which also operates in India. The FII uses its proprietary account to buys stocks in India. A government report has said that the FII or the broker acts like an exchange since it executes the trade and uses its internal accounts to settle this. Other such instruments include equity-linked notes, capped return note, participatory return notes and investment notes.

Q: Why do investors use PNs?

A: While one reason for using PNs is to keep the investor's name anonymous, some investors have used the instrument to save on transaction costs, record keeping overheads and regulatory compliance overseas. An official report said investors often find it expensive to establish broker and custodian bank relationships, deal in foreign exchange, pay taxes and/or filing, obtain or maintain an investment identity or regulatory approval in certain markets, where their total exposure is not going to be very large. Such investors look for derivative solution to gain exposure in individual, or a basket of, stocks in the relevant market. Sometimes, investors enter the Indian markets in a small way using PNs, and when their positions become larger, they find it advantageous to shift over to a full-fledged Foreign institutional investors structure.

Q: What is the problem with the instrument?

A: Reserve Bank of India, which had sought a ban on PNs, believes that it is difficult to establish the beneficial ownership or the identity of the ultimate investor, that is possible for registered FIIs. It fears that FIIs, which have to comply with the know-your customer norms, know the identity of the investor to whom the note was issued. But it is possible for the investor to sell the PN to another player resulting in multi-layering. Tax officials fear that PNs are becoming a favourite with a host of Indian money launderers who use the instrument to first take out funds out of the country, through the hawala route, and then get it back using PNs. 

Alternative way for Retirement Planning....

Reverse mortgage is proving to be a boon for senior citizens who are finally able to leverage the power of their property, 

At 80, retired Professional Vipul Trivedi had no other option but to survive on the Rs4600 pension that he received every month. Single, having never married, his only asset was the 2-bhk flat in the western suburb of Malad in Mumbai.

“Groceries, bills, maids, festivals and birthdays of relatives; at the end of the month I am left with nothing,” he says. Trivedi, however, has seen a new option emerge in the last few months — one that revolves around his 550 sq ft flat but doesn’t involve selling it.

Banks call it reverse mortgage and it was Finance Minister P Chidambaram’s brainchild. Reverse mortgage is aimed at senior citizens like Trivedi, who don’t want to exercise the option of an outright sale but still want to encash the value their properties have acquired over the years. “I have made enquires with the Punjab 

National Bank (PNB) for the scheme. As per my calculations I should get about Rs 11000 every month from the scheme. Then I could even save some money,” says Trivedi, whose flat has been valued at Rs 50 Lakhs.

What exactly is reverse mortgage and how is it different from a mortgage? S Sridhar, chairman and managing director of National Housing Bank (NHB), explains it thus:

“Reverse Mortgage Loan (RML) seeks to enable house owning senior citizens, who are above 60 years, to meet their financial needs without selling their property. The reverse mortgage is so named because the payment stream is “reversed” i.e. instead of the borrower making monthly payments to a lender (as in a conventional mortgage), a lender makes payments to the borrower.”

Currently offered by only Dewan Housing Finance Ltd, a housing finance company, and Punjab National Bank, the main aim behind launching reverse mortgage in India was the need to financially empower the 76,622,321 senior citizens of the country, who as per the 2001 census would form more than 10 per cent of India’s population by 2016.

Health claims can be denied

Health insurance, popularly known as mediclaim, has become a modern day necessity. However, in the recent past, many policyholders have seen their claims being denied by insurance companies for one reason or another. Here is a low-down on things you need to keep in mind so that when the time comes to file a claim, the insurance company does not come up with reasons to deny it.

24 hours or more: Most health insurance policies reimburse expenses on hospitalization only if the policyholder has stayed in a hospital for 24 hours. That is well-known by now.

However, some insurance companies insist on the policyholder being in the hospital for more than 24 hours, i.e. for two consecutive nights. Other than this, a room rent for two days must be charged by the hospital, for the policyholder to make a claim.

Survival period: The policy should have been active for a certain period before any claim can be made. In case of most policies, this period is 30 days, but, for some, it can be as high as 60 days. Put simply, this means if the survival period of the policy is 30 days and a patient is admitted in the hospital 15 days after taking the policy, none of the claims will be reimbursed.

This is done to ensure that individuals who are expecting to be hospitalized do not take the policy and then get the insurance companies to pay their bills. In addition, any pre-existing diseases that an individual may have are not covered at the time of commencement of the policy and in most cases are covered only after four years. Other than this, certain diseases like sinusitis, cataracts, hernia, etc, are covered only after two years.

Original bills: Most insurance companies ask for original bills to be submitted while filing for a claim. So, maintaining a record of all the original bills that are generated during the course of hospitalization is very important. If a claim has to be split
between the two insurance companies, there can be a problem.

One needs to check with the insurance companies if attested or duplicate copies of the original bills would suffice. These days, some insurance companies have also been insisting on prescriptions of a physician when accepting bills for medicines.

Filing the claim: Filing the claim as soon as possible is of utmost importance. In case of most insurance policies, the claim has to be filed within 60 days of hospitalization. Waiting beyond that can create problems with the insurer dilly-dallying on the payments.

Post-hospitalization benefits: With competition among insurance companies hotting up, insurance companies have lately started offering post-hospitalization benefits as well.
These benefits are essentially for the treatment required after the individual is out of the hospital. However, things are not as simple as they sound. One of the policies offering post-hospitalization benefits insists that such benefits will be paid only if the individual has been in hospital for five days.

Type of disease: Lately, critical illness policies have become very popular. In case of these policies, a lump sum payment is made to the policyholder if he gets diseases like cancer or suffers from a heart attack.

However, the lump sum payment will made only if you suffer from a certain type of a particular disease. All forms of cancer are not covered under the policy. So, if a policyholder suffers from a form of cancer that is covered under the policy, only then does he get a lump sum payment.

The devil, as they say, always lies in the detail. Therefore, before committing yourself to any health insurance policy, please read the fine print.

Gold — In SIP form….

Like Karl Marx put it, “Although gold and silver are not by nature money, money is by nature gold and silver.” At the end of the day, bullion is more important than the billion.

Gold SIP are the simplest and the best way of investing in the yellow metal

It took all of 16 years for the Sensex to reach 10,000. The next 10,000 points were done and dusted in just 18 months.

The market keeps telling us: “Don’t try to predict me. I am smarter than all of you put together.” But, we never give up on this futile exercise.

As an investor, I have come to believe the market is like a classroom where we are taught lessons. The same lesson is taught over and over till it is learnt well, and then, we move on to the next classroom, for another lesson.

Successful investors are those who learn the most lessons along their investing life.

Having learnt mine, I won’t be presumptuous again to predict where our stock market is headed (I don’t want to remain in the same classroom). Instead, I am going to dig my heels in, stay invested in quality stocks and mutual funds and enjoy the ride.

I will keep my SIPs going so that every dip is taken advantage of automatically. And yes, I will keep a watchful eye on the bad moons on the horizon.

Fact is, in spite of the 20,000 milestone, there remain many unsettling issues.

The price of crude oil has crossed $90.

It’s not as if I am being a pessimist. However, going forward, the only certain thing seems to be that there would be a lot of uncertainty. And what do prudent investors do when times are uncertain?

They turn to the ultimate safe haven - gold. “Nothing beats a little cash in a bear market and the oldest form of cash is gold.”

This is not to say that we would witness a bear market — if anything, we are in the midst of the mother of all Bull Runs. And the mother of Bull Run is yet to come.

However, when markets are erratic and times are unpredictable, the wise thing to do is to step up exposure to an asset that would infuse a semblance of stability and strength in the portfolio.

The simplest and best way to do this is to invest in Gold with the benefit of SIP.

In other words, a Gold Fund SIP is just like any other mutual fund scheme - the only difference being, instead of being invested in equity shares, the monies collected are invested in gold.

A change of mindset is needed and it shouldn’t really be that difficult, given that we already own other equally valuable assets in a similar form.

Think of the money in your bank. Whether you have Rs 10,000 or Rs 10 lakh or over a crore, the physical cash is not lying in your safe — your bank passbook indicates the amount you own.

This investment is essentially a hedge against inflation and its quality of negative correlation with other asset classes like stocks, fixed income securities and commodities during uncertain times.

Beating Benchmark, systematically….

A systematic transfer plan’s just right, but you can SIP it, too

Indeed, in times of volatility and uncertainty, it is wise to move cautiously, even lie low for a while and take a long-term view of things. And could there be a strategy all investors could follow, generally? There is.

Many investors typically invest when the markets are bullish and start selling after the slide is well underway. In effect, wrong timing both ways.

Go for an STP…

A right way is to go for a systematic transfer plan (STP) when the markets are unfathomable and the investor has money to invest.

This can be seen as a systematic investment plan (SIP) turned inside out. While in an SIP the money is invested in small lots that accumulate to a tidy sum over a period, in STP, a fixed amount is invested and from it small sums are farmed out and invested in other funds.

To implement this strategy, the investor needs to park the funds in a liquid plan. Now, liquid plans are debt funds that protect the corpus from volatility, as there is no exposure to equity.

One could choose a bond fund where the dividend distribution tax is the least - 14.1%.

Under the dividend option, whether weekly or daily, the amount that comes in ultimately is tax-free in the investor’s hands since the mutual fund would have paid dividend distribution tax before distributing the proceeds.

The investor could now opt for a STP, which transfers the funds in small lots, to some designated equity fund over a period.

Let us assume Dinesh invests Rs 100,000 in Birla sun life Gilt Plus - Liquid. He then opts for a STP of Rs 10,000 every week into Birla Sun Life Equity Fund, over a 10 week period, thereby reducing the risk of adverse timing of investment.

Dinesh could also opt for subdividing his investments further into three of Birla funds, viz. to get better diversification.

And if the market bottoms out midway and he wants to deploy the rest of the available amount in the liquid fund, he could stop the STP and opt to switch the entire balance to a fund of his choice. This way, he can reduce the risk to a great extent.

There is another option in STP - the reverse option. Under this, a small amount is transferred regularly into a debt fund to reduce the exposure in the equity-oriented fund.

When the market bottoms out, the entire amount in the debt fund can be redeployed in equity funds.…or start SIP…

SIP is an evergreen option available to the investor. The strategy always works, unless the markets keep falling, for years on end.

This way, the investor gets a lower average unit price over time and virtually does away the timing risk.

Financial Planning: Need of an Hour….

‘Have you met a financial planner?’ asked Mahesh over their daily morning walk.

With a raised eyebrow, Ajay said he didn’t need one as he already had his family insurance agent.

Besides insurance, he was investing in fixed deposits and small savings schemes, and his agent had even started recommending mutual fund schemes and was helping him with his investments. Why on the earth would he need a planner?

Mahesh smiled, but repeated his question. Ajay seemed a bit confused at first, but soon thought he knew what his friend was up to and burst out laughing.

“If I had the piles of cash to require a portfolio manager, I won’t quite be middle class, would I?” he asked in a voice that gave away his hurt. Was his friend trying to ridicule him?

Mahesh shook his head in disbelief, realizing that his dear friend, too, was among those who misunderstood financial planning and shied away from it. He started explaining the need for financial planners and their growing importance for the middle class.

Evolution of the middle class :

Mahesh began expounding on the evolution of the Indian middle class over time and their propensity to earn more and splurge even more.

Increasing disposable incomes and changing attitudes are driving consumption demand by the middle class, especially the young professionals, who like to accumulate assets that were once beyond their reach.

Further, salaries are climbing through the roof as India Inc gets increasingly performance and market oriented in their strategy of rewarding their human resources.

The salary increases in India have been among one of the highest in the world. All this means additional money in the hands of the middle class employed in these sectors.

Consequently, more of their disposable income is diverted for lavish spending. Further, with the advent of malls, multiplexes and the influx of foreign luxury brands, Indians could not have asked for anything more.

Secondly, availability of easy and relatively cheap credit has given these strata the power not only to dream big but also the monetary capacity to realize those dreams.

Factors like ‘snob effect’ and ‘peer pressure’ have also contributed to the change in their attitude. They are now comfortable with having to pay the EMIs from their monthly salary if that enables them to possess items on their wish list.

Why financial planning?

Ajay was starting to agree with Mahesh by now. He could not help blurting out how he was finding it difficult to strike a balance between his current spending and savings for future goals.

Mahesh was happy to note that the discussion was working. He now explained that financial planning was actually a process of helping people achieve their financial goals and fulfill their needs in a disciplined, systematic and scientific manner by taking a holistic view of their life.

He underlined the fact that it is the middle class who find it difficult to achieve their goals because goal setting is grounded in the realities of their income and expenditure.

A wealthy person has goals, too, but also the capacity to fund them. Consequently, for the wealthy, financial planning is more about crunching for better returns on their already amassed wealth, which is not the case with the middle class.

But, shouldn’t the middle class be worried about returns on their savings?

Negative, said Mahesh. While savings and returns are dear to one and all, they should be anticipated in terms of one’s goals.

In fact, planning for goals assumes more importance for the middle class, as it requires the financial planner to take stock of the client’s existing resources, identify the shortfalls and formulate a plan to meet the objectives.

A financial planner helps a person list and prioritize his goals, said Mahesh. Often, goals like purchase of a home, accumulating funds for children’s education or marriage, etc have emotions attached to them and it is impossible to prioritize one.

A financial planner could help one out of such a situation.

The wide range of financial instruments available to an investor today is yet another reason for engaging the services of a financial planner.

The common man could be stumped by the plethora of options available.

A planner helps channelize one’s savings into the right avenues, be it equity or debt, depending on the client’s risk profile.

Mahesh also explained the process of transition from products to consulting, visible globally.

Consumers today wish to have a customized solution for their problems rather than be content with the products offered by financial institutions.

With the increasing emphasis on consulting, the role of a financial planner can never be understated. Ajay was convinced about the importance of financial planning.

Certainly, an insurance advisor was no substitute for a financial planner.

Can see bottom around Nifty 5K & Sensex 16K

Bounce Back to 5700-5750 likely, just to trap retail or create more buyers!

Sharp decline will resume, look for Nifty 5000 to 4800 levels by March - April '11

Dull period from April to June '11 expected. Market will not show much movement. Global market like US will resume fall during these months. This can be the BEST TIME to BUY.

Expect bottom around Nifty 5000 & SENSEX 16K

A lot can happen over 3 months......

Benjamin Graham and Security Analysis: A Reminiscence Walter J. Schloss

Ben Graham was an original thinker as well as a clear thinker. He had high ethical standards and was modest and unassuming. He was one of a kind. I worked for him for nearly 10 years as a security analyst. In re-reading the preface to the first edition of Security Analysis, I am impressed all over again with Ben’s views. I quote . . . “[W]e are concerned chiefly with concepts, methods, standards, principles, and above all with logical reasoning. We have stressed theory not for itself alone but for its value in practice. We have tried to avoid prescribing standards which are too stringent to follow or technical methods which are more trouble than they are worth.” Security Analysis says it all. It is up to analysts and investors to put Ben’s ideas into practice. Back in 1935 while working at Loeb Rhodes (then called Carl M.Loeb & Co.), one of the partners, Armand Erpf, gave a good piece of advice when I asked him how I could get into the “statistical department.”

In those days and perhaps today to some extent, the best way to advance was by bringing in business. If you had a wealthy family or friends, you brought in commissions. Security analysis was in its infancy and who you knew was much more important than what you knew. If you didn’t have connections, it was difficult to get ahead. In any case Mr. Erpf told me that there was a new book called Security Analysis that had just been written by a man called Ben Graham.

“Read the book and when you know everything in it, you won’t have to read anything else.” I took Ben’s course in Advanced Security Analysis at the New York Stock Exchange Institute (New York Institute of Finance). Ben was a good speaker, enthusiastic and logical. Ben did something that I haven’t seen done often. He would take an undervalued situation at that time, such as the bankrupt bonds of Baldwin Locomotive,and show how much the new securities would be worth based on their projected earning power and assets and relate this to the price of the bonds. Many bright Wall Streeters such as Gus Levy of Goldman Sachs,who later became the top arbitrageur in the country, used to take his course. I often wondered how much money people made on Ben’s ideas by transforming them into investments. Ben was very generous with his thoughts and his time, particularly with young people. By offering me a job as his security analyst as I was about to leave the Army at the end of 1945, he changed my life. I know he helped others in our field too. At Ben’s memorial service, Dave Dodd, Ben’s co-author, told how he had got involved in the book. It seems that Ben was asked to teach a course at Columbia University on investments and he agreed to do it with the stipulation that he would only do so if someone would take notes. Dave Dodd, a young instructor, volunteered and took copious notes at each of Ben’s lectures. Ben, using the notes, then went ahead and wrote Security Analysis. As Dave said, Ben did the work but he insisted that Dave get credit by being co-author. Professor Dodd went on to become a very successful investor and a director of Graham-Newman Corporation, an investment trust that Ben had founded in 1936 with his partner, Jerome Newman. The ability to think clearly in the investment field without the emotions that are attached to it, is not an easy undertaking. Fear and greed tend to affect one’s judgment. Because Ben was not really very aggressive about making money, he was less affected by these emotions than were many others. Ben had been hurt by the Depression, so he wanted to invest in things that would protect him on the downside. The best way to do this was to lay out rules which, if followed, would reduce his chance of loss.

A good example of this was the day I happened to be in his office at Graham-Newman when he received a telephone call that they had bought 50 percent of Government Employees Insurance Co. (now GEICO). He turned to me and said, “Walter, if this purchase doesn’t work out, we can always liquidate it and get our money back.” The fact that GEICO worked out better than his wildest dreams wasn’t what he was looking for. As the saying goes, a stock well bought is half sold. I think Ben was an expert in that area.Graham-Newman followed the precepts set down by Ben and the fund prospered. Compared to today’s investment company, it was tiny. Its total net assets on January 31, 1946, were $3,300,000. Ben’s emphasis was on protecting his expectation of profit with minimum risk. If one wants to get hold of Moody’s Investment Manuals for the 1947–1956 period, it is interesting to see Graham-Newman’s holdings. Many of them were small, practically unknown companies but they were cheap on the numbers. It is instructive to read their annual report for the year ended January 1946. It states that their general investment policies were twofold.

1. To purchase securities at prices less than their intrinsic value as determined by careful analysis with particular emphasis on the purchase of securities at less than their liquidating value.

2. To engage in arbitrage and hedging operations. 

I helped Ben with the third edition of Security Analysis, published in 1951. In the appendix is an article on special situations that first appeared in The Analysts Journal in 1946. In the article, he had worked out an algebraic formula for risk-reward results that could be applied today, 37 years later. In 1949, The Intelligent Investor was published. This was a book for the layman but it focused on security analysis and gave prestige to the field. Its fourth revised edition is still in print. One day, I came across a very cheap stock based on its price at the time, Lukens Steel. We bought some but expected to buy more. At this point, Ben went out to lunch with a man who kept telling Ben about one blue chip after another. At the end of the meal he asked Ben if he liked anything and Ben said we were buying some Lukens Steel.

I doubt if it took a day before the man went out and bought a great deal of Lukens and pushed the stock out of our buying range. I had the impression after Ben told me the story that he didn’t want to be rude and hadn’t realized how important his comments were. He tried to keep things simple. He wrote that he didn’t believe security analysts should use more than arithmetic and possibly a little algebra for any investment decision. Because Ben was a cultured, many-faceted man, he didn’t spend as much time on investments as did others in the field. He liked to try new ideas. In the late 1930s he became involved in promoting his evernormal granary theory and wrote a book on it called Storage and Stability in which some commodities and metals would be used as a backing for our currency. His ideas made sense and with cotton at six cents a pound and other raw materials at low prices, it was an interesting proposal. He never had the clout to sell it to the Congress, although Bernard Baruch, a friend of his, supported the idea and it could have been a useful way to help the farmers and reduce the threat of inflation. Of all the things that Ben accomplished in his lifetime, Security Analysis was, to me, his greatest achievement. Ben Graham was the leader in giving status to security analysts. It was a privilege to know him.