Benjamin Graham was a British-born American
professional investor. Graham is considered
the father of value investing, an investment
approach he began teaching at Columbia Business
School in 1928 and subsequently refined with
David Dodd through various editions of their
famous book Security Analysis. Graham had
many disciples in his lifetime, a number of
whom went on to become successful investors
themselves. Graham's most well-known disciples
include Warren Buffett, William J. Ruane,
Irving Kahn and Walter J. Schloss, among others.
Buffett, who credits Graham as grounding him
with a sound intellectual investment framework,
described him as the second most influential
person in his life after his own father. In
fact, Graham had such an overwhelming influence
on his students that two of them, Buffett
and Kahn, named their sons Howard Graham Buffett
and Thomas Graham Kahn after him. Graham also
taught at the UCLA Anderson School of Management.
Life and career
Early life
Benjamin Graham was born Benjamin Grossbaum
in London, England, to Jewish parents. He
moved to New York City with his family when
he was one year old. After the death of his
father and experiencing poverty, he became
a good student, graduating from Columbia University,
as salutatorian of his class, at the age of
20. He received an invitation for employment
as an instructor in English, mathematics,
and philosophy, but took a job on Wall Street
eventually starting the Graham-Newman Partnership.
Early in his professional life, Graham made
a name for himself with "The Northern Pipeline
Affair", involving John D. Rockefeller.
Career
His book, Security Analysis, with David Dodd,
was published in 1934 and has been considered
a bible for serious investors since it was
written. It and The Intelligent Investor published
in 1949, are his two most widely acclaimed
books. Warren Buffett describes The Intelligent
Investor as "the best book about investing
ever written." Graham exhorted the stock market
participant to first draw a fundamental distinction
between investment and speculation. In Security
Analysis, he proposed a clear definition of
investment that was distinguished from what
he deemed speculation. It read, "An investment
operation is one which, upon thorough analysis,
promises safety of principal and an adequate
return. Operations not meeting these requirements
are speculative."
Graham wrote that the owner of equity stocks
should regard them first and foremost as conferring
part ownership of a business. With that perspective
in mind, the stock owner should not be too
concerned with erratic fluctuations in stock
prices, since in the short term, the stock
market behaves like a voting machine, but
in the long term it acts like a weighing machine.
Graham distinguished between the passive and
the active investor. The passive investor,
often referred to as a defensive investor,
invests cautiously, looks for value stocks,
and buys for the long term. The active investor,
on the other hand, is one who has more time,
interest, and possibly more specialized knowledge
to seek out exceptional buys in the market.
Graham recommended that investors spend time
and effort to analyze the financial state
of companies. When a company is available
on the market at a price which is at a discount
to its intrinsic value, a "margin of safety"
exists, which makes it suitable for investment.
Graham wrote that investment is most intelligent
when it is most businesslike, a statement
which Warren Buffett regarded as the most
important words about investment ever written.
Graham said that the stock investor is neither
right nor wrong because others agreed or disagreed
with him; he is right because his facts and
analysis are right. Graham's favorite allegory
is that of Mr. Market, a fellow who turns
up every day at the stock holder's door offering
to buy or sell his shares at a different price.
Usually, the price quoted by Mr. Market seems
plausible, but occasionally it is ridiculous.
The investor is free to either agree with
his quoted price and trade with him, or to
ignore him completely. Mr. Market doesn't
mind this, and will be back the following
day to quote another price. The point is that
the investor should not regard the whims of
Mr. Market as determining the value of the
shares that the investor owns. He should profit
from market folly rather than participate
in it. The investor is best off concentrating
on the real life performance of his companies
and receiving dividends, rather than being
too concerned with Mr. Market's often irrational
behavior.
Graham was critical of the corporations of
his day for obfuscated and irregular financial
reporting that made it difficult for investors
to discern the true state of the business's
finances. He was an advocate of dividend payments
to shareholders rather than businesses keeping
all of their profits as retained earnings.
He also criticized those who advised that
some types of stocks were a good buy at any
price, because of the prospect of sustained
stock price growth, without a good analysis
of the business's actual financial condition.
These observations remain relevant today.
Legacy
Graham's most famous student is Warren Buffett.
According to Buffett, Graham said that he
wished every day to do something foolish,
something creative, and something generous.
Buffett said that Graham excelled most at
the last.
Some of Graham’s most famous disciples,
who have drawn on the works of several Columbia
Business School alumni, many of whom were
direct disciples of Benjamin Graham himself,
include famous Value Investors such as Warren
Buffett, Charlie Munger, Philip Fisher, Walter
Schloss, Peter Lynch, John Templeton, Mohnish
Pabrai, Amit Ayare, Whitney Tilson, Prem Watsa,
Lauren Templeton, Jerome Chazen and many more.
Alongside his revolutionary work in investment
finance, Graham also made significant contributions
to economic theory. Most notably, he devised
a new basis for both U.S. and global currency.
Personal life
According to The Snowball, after his son's
death, Graham had an affair with his deceased
son's girlfriend Malou who was several years
older to his son, and used to travel to France
frequently to visit her. He later separated
from his wife Estey in New York, after she
refused his offer of living in New York for
six months and France for six months. Marie
Louise was content to live with Graham without
marriage.
Bibliography
Books
Security Analysis, editions 1934, 1940, 1951
and 1962 and 1988 and 2008 ISBN 978-0-07-159253-6
The Intelligent Investor, editions 1949, reprinted
in 2005; 1959, 1965, 1973 with many reprints
since
Storage and Stability: A Modern Ever-normal
Granary, New York: McGraw Hill. 1937 ISBN
0-07-024774-9
The Interpretation of Financial Statements
World Commodities and World Currency, New
York & London, McGraw-Hill Book Company. 1944
ISBN 0-07-024806-0
Benjamin Graham, The Memoirs of the Dean of
Wall Street ISBN 978-0-07-024269-2
Papers
———; Graham, Benjamin. "Some Calculus
Suggestions by a Student". The American Mathematical
Monthly 24: 265–271. doi:10.2307/2973181.
JSTOR 2973181. 
———, Benjamin. "The Critique of Commodity-Reserve
Currency: A Point-by-Point Reply". The Journal
of Political Economy 51: 66–69. doi:10.1086/255988.
JSTOR 1826594. 
———; Graham, Benjamin. "The Undistributed
Profits Tax and The Investor". The Yale Law
Journal 46: 1–18. doi:10.2307/791630. JSTOR 791630. 
———. "Money as Pure Commodity". American
Economic Review 37: 304–307. JSTOR 1821137. 
———. "National Productivity: Its Relationship
to Unemployment-in-Prosperity". American Economic
Review 37: 384–396. JSTOR 1821149. 
———; Graham, Benjamin. "Some Investment
Aspects of Accumulation Through Equities".
The Journal of Finance 17: 203–214. doi:10.2307/2977419.
JSTOR 2977419. 
———. "The Commodity-Reserve Currency
Proposal Reconsidered". In Yeager, Leland
B.. In Search of Monetary Constitution. Cambridge,
MA: Harvard University Press. pp. 184–214. 
See also
Warren Buffett
Charlie Munger
Philip Fisher
John Burr Williams
John Neff
Walter Schloss
Peter Lynch
John Templeton
Mohnish Pabrai
Amit Ayare
Whitney Tilson
Prem Watsa
Lauren Templeton
William J. Bernstein
Benjamin Graham formula
Valuation using discounted cash flows
Gordon model
References
External links
The Rediscovered Benjamin Graham – selected
writings of the wall street legend, by Janet
Lowe.
