For the defensive investor the central appeal of the public-utility
stocks at this time should be their availability at a moderate price
in relation to book value. This means that he can ignore stockmar-
ket considerations, if he wishes, and consider himself primarily as
a part owner of well-established and well-earning businesses. The
market quotations are always there for him to take advantage of
when times are propitious—either for purchases at unusually
attractive low levels, or for sales when their prices seem definitely
too high.
The market record of the public-utility indexes—condensed in
Table 14-6, along with those of other groups—indicates that there
have been ample possibilities of profit in these investments in the
past. While the rise has not been as great as in the industrial index,
the individual utilities have shown more price stability in most
periods than have other groups.* It is striking to observe in this
table that the relative price/earnings ratios of the industrials and
the utilities have changed places during the past two decades.
Stock Selection for the Defensive Investor 359* In a remarkable confirmation of Graham’s point, the dull-sounding Stan-
dard & Poor’s Utility Index outperformed the vaunted NASDAQ Composite
Index for the 30 years ending December 31, 2002.TABLE 14-6 Development of Prices and Price/Earnings Ratios
for Various Standard & Poor’s Averages,
1948–1970.
Industrials Railroads Utilities
Year Pricea P/E Ratio Pricea P/E Ratio Pricea P/E Ratio
1948 15.34 6.56 15.27 4.55 16.77 10.03
1953 24.84 9.56 22.60 5.42 24.03 14.00
1958 58.65 19.88 34.23 12.45 43.13 18.59
1963 79.25 18.18 40.65 12.78 66.42 20.44
1968 113.02 17.80 54.15 14.21 69.69 15.87
1970 100.00 17.84 34.40 12.83 61.75 13.16
aPrices are at the close of the year.