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It's nonsensical to derive a price/earnings ratio by dividing the known current price by unknown future earnings.

Benjamin Graham

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Benjamin Graham
Age: 82 †
Born: 1894
Born: May 8
Died: 1976
Died: September 21
Economist
Financier
Investor
University Teacher
Writer
London
England
Current
Unknown
Nonsensical
Currents
Ratio
Investing
Earnings
Price
Ratios
Known
Derive
Future
Dividing
Earning

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Good managements produce a good average market price, and bad managements produce bad market prices.
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The money cost of the reservoir plan literally fades into insignificance when it is compared with the financial burden which the great depression imposed on the nation.
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Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed.
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The distinction between investment and speculation in common stocks has always been a useful one and its disappearance is cause for concern.
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The purchase of a bargain issue presupposes that the market's current appraisal is wrong, or at least that the buyer's idea of value is more likely to be right than the market's. In this process the investor sets his judgement against that of the market. To some this may seem arrogant or foolhardy.
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Only in the exceptional case, where the integrity and competence of the advisers have been thoroughly demonstrated, should the investor act upon the advice of others without understanding and approving the decision made.
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It is worth pointing out that assuredly not more than one person out of a hundred who stayed in the market after after 1925 emerged from it with a net profit and that the speculative losses taken were appalling.
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Every corporate security may be best viewed, in the first instance, as an ownership interest in, or a claim against, a specific business enterprise.
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The investor's chief problem - and even his worst enemy - is likely to be himself.
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Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of good business conditions. The purchasers view the good current earnings as equivalent to 'earning power' and assume that prosperity is equivalent to safety.
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High valuations entail high risks.
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Experience teaches that the time to buy stocks is when their price is unduly depressed by temporary adversity. In other words, they should be bought on a bargain basis or not at all.
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No matter how careful you are, the one risk no investor can ever eliminate is the risk of being wrong. Only by insisting on what Graham called the margin of safety - never overpaying, no matter how exciting an investment seems to be - can you minimize your odds of error.
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A stock is not just a ticker symbol or an electronic blip it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.
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Why should the cotton growers suffer if there is shortage of wheat?
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Real investment risk is measured not by the percent that a stock may decline in price in relation to the general market in a given period, but by the danger of a loss of quality and earnings power through economic changes or deterioration in management.
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Though business conditions may change, corporations and securities may change, and financial institutions and regulations may change, human nature remains the same. Thus the important and difficult part of sound investment, which hinges upon the investor's own temperament and attitude, is not much affected by the passing years.
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To establish the right price for a stock, the market must have adequate information, but it by no means follows that is the market has this information it will thereupon establish the right price.
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Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, Margin of Safety.
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If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.
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