The Intelligent Investor by Benjamin Graham Jason Zweig

Author:Benjamin Graham, Jason Zweig [Zweig, Benjamin Graham, Jason]
Language: eng
Format: epub
Publisher: ePub Bud (www.epubbud.com)
Published: 2013-08-28T16:00:00+00:00

Commentary on Chapter 11

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owned not by its shareholders but by its bondholders, who can lay claim to Amazon’s assets if they have no other way of securing the interest payments they are owed. (To be fair, Amazon’s ratio of earnings to fixed charges was far healthier in 2002 than two years earlier, when earnings fell $1.1 billion short of covering debt payments.) A few words on dividends and stock policy (for more, please see Chapter 19):

•

The burden of proof is on the company to show that you are better off if it does not pay a dividend. If the firm has consistently outperformed the competition in good markets and bad, the managers are clearly putting the cash to optimal use. If, however, business is faltering or the stock is underperforming its rivals, then the managers and directors are misusing the cash by refusing to pay a dividend.

•

Companies that repeatedly split their shares—and hype those splits in breathless press releases—treat their investors like dolts.

Like Yogi Berra, who wanted his pizza cut into four slices because

“I don’t think I can eat eight,” the shareholders who love stock splits miss the point. Two shares of a stock at $50 are not worth more than one share at $100. Managers who use splits to promote their stock are aiding and abetting the worst instincts of the investing public, and the intelligent investor will think twice before turning any money over to such condescending manipulators.10

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Companies should buy back their shares when they are cheap—

not when they are at or near record highs. Unfortunately, it recently has become all too common for companies to repurchase their stock when it is overpriced. There is no more cynical waste of a company’s cash—since the real purpose of that maneuver is to enable top executives to reap multimillion-dollar paydays by selling their own stock options in the name of “enhancing shareholder value.”

A substantial amount of anecdotal evidence, in fact, suggests that managers who talk about “enhancing shareholder value” seldom do.

In investing, as with life in general, ultimate victory usually goes to the doers, not to the talkers.

10 Stock splits are discussed further in the commentary on Chapter 13.

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