The subject is vast. Graham's book (Security Analysis) is very useful. And if one really applies in acreative way the essence of what Graham taught in that book, to what is happening around usnow, one can, in my view, build an entire life's career around just a
of the things he taught.Personally, for me it's been
interesting to see how the
logic works even seventy yearsafter the book was first published. And Graham put it down his ideas so eloquently and they are allthere and people just don't use those ideas in the way I think they should be used.
I talked about cash bargains in 2002. We
that, if the market value of a company is less thanthe net cash (cash and marketable securities net of current liabilities and debt) in its possession,then you're getting the fixed assets and assets other than cash, essentially for free. But Grahamgave a warning “Be careful about cash being dissipated away if there is a loss-making businessout there.” So you may have a company whose stock sells at a price making it a “cash bargain”and the business is losing money. In such cases, the market is right in valuing the stock at belowcash, because the investors will not see the cash. And that's what I too had said in 2002, but then Ihad some additional thoughts on that subject, over the years.Take holding companies, for example Nalwa Sons or Jindal South West Holdings or Consolidated Finvest, all of which are so-called-cash bargains. My simple question here is whereis the catalyst? Is it a family dispute? Is it the presence of Mr. Soros, for example in the case of Jindal Southwest Holdings? Your know Jindal South West at Rs 225 at present is reallyinteresting because the company holds shares in JSW Steel on which futures and options cannow be traded. So one could technically go long in the holding company and short the underlyingand have a very interesting trade out there. But you can only make money on the trade if younarrow the spread. Alternatively, one could just buy the holding company as a very cheap way of getting an interest in JSW Steel. Well whether Mr. Soros will be able to narrow the spread or whether people who are in that particular situation will be able to do it and whether it make sensefor us to buy into that situation or not, that's debatable.But in the absence of a catalyst, I don't feel very excited about holding companies as I used to atone point of time. I now feel that it takes a huge amount of patience for such situations to work outin the absence of a catalyst. Moreover, the basic structure of holding companies, as Graham hadmentioned in his book, is a very defective corporate structure. It may be a wonderful structurefrom the controlling stockholders' point of view - from the market's point of view it's a verydefective structure. The more layers you put in between the eventual property and the ultimate