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This is the second in a series of reviews of Graham and Dodd's investment classic Security Analysis. This book is credited with providing Warren Buffett and his disciples with the acumen to pick stocks that generate long-term wealth. Although the section of the book that we chose to review is probably the smallest, we feel it is worth examining.

The following paragraph is a continuation of the previous excerpt that we reviewed recently regarding investment timing.

“There are two other major questions of investment timing. The first is whether the investor should try to anticipate the movements of the market-endeavoring to buy just before an advance begins or in its early stages, and to sell at corresponding times prior to or at the onset of a full-scale decline. We state dogmatically at this point that it is impossible for all investors to follow timing of this sort, and that there is no reason for any typical investor to believe that he can get more dependable guidance here than the countless speculators who are chasing the same will-o’-the-wisp. Furthermore, the major consideration for the investor is not when he buys or sells but at what price (Benjamin Graham, David L. Dodd, Sidney Cottle. Security Analysis, Fourth Edition. 1962. Page 70.).

We can’t understand how Graham and Dodd could expect an investor to recognize the upper range of a bull market when they “dogmatically” believe it is impossible to “anticipate the movements of the markets…”.  Also perplexing is the belief that buying at a specific price is unassociated with timing of some sort. After all, if a stock is currently overvalued but otherwise “sound” and the price remains the same, then over time the stock will become more fairly valued or undervalued. This suggests that price is better at some times than others. A stock that you wouldn’t buy today because the price is expensive will soon become a stock that is less expensive, in due time.

related article: Graham and Dodd on Market Timing: I

The following is our critique of a passage of the investment "bible" Security Analysis by Graham, Dodd, and Cottle. This book is credited with providing Warren Buffett with the knowledge and background on how to accurately assess stocks. Although we know this book is basically about number crunching, our concern is how this book treats the question of timing of the purchase of stocks. In this regard, Security Analysis says the following:

“Timing Consideration in Investment Policy- The old rule for the ordinary investor was that he should buy sound securities when he had funds available. If he waited for lower prices he would be losing interest on his money; he might “miss his market,” even if prices declined, in any case, he was turning himself into a stock trader or speculator. Much of this view retains its validity. However, the time when the investor should clearly not buy common stocks is during the upper range of a bull market. (Benjamin Graham, David L. Dodd. Sidney Cottle. Security Analysis, Fourth Edition. 1962. Page 70.).”

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