Outselling Chicken Soup for the Soul these days on Amazon.com is what one might call "Chicken Soup for the Investor's Soul." (Let's assume investors do in fact have souls.)
Security Analysis by Benjamin Graham and David Dodd is climbing the charts despite a price of $140 for the newest edition, despite its 766 pages, despite chapter titles such as "Capitalization Structure" and despite the fact that it was first published early in the Franklin D. Roosevelt administration.
At least two investment houses are distributing free copies to clients.
"The biggest event in the world of investment publishing this year," the Financial Times predicted of the book's recent re-release. "A time-tested classic," said T. Rowe Price Chairman Brian C. Rogers in a blurb.
Can an Oprah endorsement be far off?
Security Analysis is the feel-good sensation of 2008 for two reasons. First, it explains very clearly how not to lose money in financial bubbles. Newly bankrupt readers, their timing off by a couple of years, will gain in wisdom what they lack in net worth.
Second, Graham and Dodd's way of thinking adds to a widespread - though not universal - sense that stocks are cheap and that the Dow Jones dive is over.
"We do not know how long fear and irrational pricing will grip the market," Longleaf Partners, one of the firms handing out the book, wrote to clients two weeks ago. "But we do know that this is the most compelling opportunity set we have seen in 33 years."
It was a long way down.
At yesterday's close of 8,668, the Dow Jones industrial average has fallen 38 percent from its peak of 14,093 in October 2007. Standard & Poor's index of 500 large companies, a broader market measure, is down even more. Neither index is higher than it was in 2002 - or 1997! (Thanks to dividends, however, returns since then have been more than zero.)
A wise-guy hedge-fund manager sent holiday cards with a stock chart like a Christmas tree - steeply up one side, steeply down the other. It was a fanciful distortion - but unfortunately not much of one.
The positive case for stocks, however, is more than just, "stock prices used to be high and now they're low."
Relative to corporate profits, which is the reason to buy shares, stocks are the least expensive they've been in a long time. Most investors know the price/earnings ratio - what you pay for a stream of profits. Divide the stock price by the most recent 12 months' earnings per share.
