Chapter 8: Specific Standards for Bond Investment
Principle 4: Definite Standards of Safety Must be Applied
Graham uses the New
York Savings
bank law provisions on bond investment to develop standards.
- The Nature and
Location of the Business: Graham suggests that investor should not
reject any class of investments but require a stronger exhibit by the
individual bond to compensate for any weakness supposedly inherent in
its class.
On
the subject
of foreign bonds, theory states that bonds of a corporation cannot
enjoy better
security than the obligations in which the corporation is located. He
notes
that foreign corporation bonds have an advantage over government bonds
in that
the holder enjoys specific legal remedies.
- The Size of the
Enterprise: Graham notes that bonds of smaller companies are more
vulnerable to unexpected happenings and that they may be disqualify for
conservative investment.