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I'm reading Benjamin Graham's The Intelligent Investor currently, and there's a term "quotational loss." What does that mean?

What we have just said indicates that there may no longer be such a thing as a simon-pure investment policy comprising representative common stocks -- in the sense that one can always wait to buy them at a price that involves no risk of a market or "quotational" loss large enough to be disquieting. In most periods the investor must recognize the existence of a speculative factor in his common-stock holdings.

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Been a long while since I've read it but if I remember correctly with quotational loss Graham refers to an unjustified decline in stock price because of Mr. Market's fear and loathing where the business prospects of the company are actually still sound.

This is opposed to "actual" loss of capital which he would consider to be a company going bankrupt or just more generally turning out to have way worse business prospects than expected with the justified decline in stock price that entails.

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In this instance "quotational" is a reference to a market price quote, not a mathematical function. Staunch "value investors" like Graham, Dodd, Munger, Buffett et al. believe there is a material difference between what security is "worth" and what the current market mood quotes as its price.

You, the investor, perform your analysis then derive a value for a security. If there has been no material change to an aspect of the security you analyzed then there hasn't been a change in that security's value, even if there has been a decline in the price quoted by the market, that is a "quotational loss."

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https://www.fool.com/investing/general/2013/07/30/2-types-of-risk-2-types-of-bubbles.aspx (mirror):

The Wall Street Journal reviews:

What Mr. Bernstein calls "shallow risk" is a temporary drop in an asset's market price; decades ago, the great investment analyst Benjamin Graham referred to such an interim decline as "quotational loss."

"Deep risk," on the other hand, is an irretrievable real loss of capital, meaning that after inflation you won't recover for decades -- if ever.

So quotational loss = loss not explained by change of actual value of a firm.

  • 1
    Nice answer and it ties Graham and Munger. – zeta-band Sep 5 '17 at 20:07

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