Archives of “david dodd” tag

rss

Speculation Defined

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Graham and Dodd’s Definition of Speculation

In their 1934 classic text, Security Analysis, Benjamin Graham and David Dodd provided a general definition of speculation: “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”

By this definition, most people who buy stocks are speculators. We can attempt to sharpen Graham and Dodd’s definition by including time-scale. Speculators are not interested in putting their money into a stock or commodity for a long time. They want to see a good profit quickly – on a time scale of minutes to months. If their money does not quickly perform well in a situation, they move it into another situation.

In pursuit of greater gain, speculators take greater risks with their capital than people who put their money into Savings & CD Accounts.

Jesse Livermore’s Definition of Speculation

Jesse Livermore, the 20th century’s most (in)famous speculator provided his own definition of speculation – preceding Graham and Dodd’s by several years. In Reminiscences of a Stock Operator, under his pseudonym of Lawrence Livingston, he said: “The speculator is not an investor. His object is not to secure a steady return on his money at a good rate of interest, but to profit by either a rise or a fall in the price of whatever he may be speculating in.” (more…)

When Buffet Breaks His Rules

  
Analysis, Education
#  #  #  #  #  #  #  #  #  #  #

Reading some headlines, I see that Buffet has “dumped Walmart” and “bought airline stocks” both of which seem to violate his rules: 1. to keep a stock forever and 2. never buy airlines.

It would seem that the math of such a big fund has forced him to change. Buying a small market value stock and riding the exponential growth once it succeeds no longer adds much to his returns. Since he is so diversified with such big companies hanging on forever gives market like returns and one is much more efficient by buying an index. So it would seem he is left with trying to time the market, on big companies and/or sectors, to add value to his shareholders.

My question is has he been successful when he has violated his rules in the past? Or does he like most of us get humbled by the markets when we try something new?

Go to top