Benjamin Graham

For other people with the same name, see Ben Graham (disambiguation).
Benjamin Graham
Born Benjamin Grossbaum
(1894-05-09)May 9, 1894
London, England
Died September 21, 1976(1976-09-21) (aged 82)
Aix-en-Provence, France
Nationality United States
Institution Columbia Business School, Graham-Newman Partnership, UCLA Anderson School of Management
Field Finance
Investment
Alma mater Columbia University
Influenced Warren Buffett
William J. Ruane
Irving Kahn
Walter J. Schloss
David Dodd
Jean-Marie Eveillard
Seth Klarman
Contributions Security Analysis (1934)
The Intelligent Investor (1949)

Benjamin Graham (/ɡræm/; born Benjamin Grossbaum; May 9, 1894 – September 21, 1976) was a British-born American economist and 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.[1] 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,[2] to Jewish parents.[3][4] 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.[5]

Career

Benjamin Graham and his memoirs

His first book, Security Analysis, with David Dodd, was published in 1934. [6] [7] [8] [9] [10] Security Analysis and The Intelligent Investor, published in 1949 (4th revision, with Jason Zweig, 2003), are his two most widely acclaimed books. Warren Buffett describes The Intelligent Investor as "the best book about investing ever written."[11] 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."[12]

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 (i.e. its true value will be reflected in its stock price in the long run). 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.[13] 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. By that he meant 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.[14] 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.[15]

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.[16]

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.[17] Buffett said that Graham excelled most at the last.[18]

Some of Graham’s most famous disciples include Value Investors such as Warren Buffett, Charlie Munger, Philip Fisher, Walter Schloss, Peter Lynch, John Templeton, Mohnish Pabrai, Whitney Tilson, Prem Watsa, Jerome Chazen, and Joel Greenblatt among others.

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.[19]

Personal life

According to The Snowball, after his son's death, Graham had an affair with his deceased son's girlfriend Marie Louise "Malou" Amingues (who was several years older than his son[20]) 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. Amingues was content to live with Graham without marriage.[21]

Bibliography

Books

Papers

See also

References

  1. ↑ "Benjamin Graham: The Father of Value Investing". Vintage Value Investing.
  2. ↑ The Motley Fool. Investment Greats: Ben Graham. April 17, 2009.
  3. ↑ However, he wrote in his Memoirs that, "I must confess here that I feel little emotional loyalty to the Jewish people from whom I sprung". Graham, Benjamin; Chatman, Seymour Benjamin. Benjamin Graham: The Memoirs of the Dean of Wall Street, pp. 63–64. McGraw-Hill, 1996. ISBN 0-07-024269-0
  4. ↑ Times of Israel: "The Jewish Origins of Value investing" by Gabriele Grego December 8, 2014
  5. ↑ Bloomberg, How Benjamin Graham Revolutionized Shareholder Activism. May 17th, 2013.
  6. ↑ New York Times,August 16, 1998 Gretchen Morgenson – Market Watch MARKET WATCH; A Time To Value Words of Wisdom“ … Security Analysis by Benjamin Graham and David Dodd.”
  7. ↑ New York Times, January 2, 2000 Business Section Humbling Lessons From Parties Past By BURTON G. MALKIEL “BENJAMIN GRAHAM, co-author of "Security Analysis,"long ago put his finger on the most dangerous words in an investor's vocabulary: "This time is different." Burton G. Malkiel is an economics professor at Princeton University and the author of "A Random Walk Down Wall Street" (W.W. Norton).
  8. ↑ Amazon: Editorial Reviews http://www.amazon.com/Security-Analysis-Benjamin-Graham/dp/1932378073 “Security Analysis is the bible of fundamental analysis. Originally published in 1934, the tome systematically lays bare the science of security analysis.”
  9. ↑ About.com Investing for Beginners http://beginnersinvest.about.com/cs/productreviews/gr/112702a.htm “Benjamin Graham's Security Analysis has been called the "Bible" of investing.”
  10. ↑ AbeBooks.com http://www.abebooks.com/book-search/title/security-analysis/author/benjamin-graham/sortby/1/n/200000080/page-1/ “Just as value investing never goes out of style, neither does the value investor's bible, 'Security Analysis,' by Benjamin Graham and David L. Dodd, which has withstood the test of time as well or better than any investment book ever published.”
  11. ↑ Warren Buffett, "Preface to the Fourth Edition", in Benjamin Graham, "The Intelligent Investor", 4 ed., 2003.
  12. ↑ Benjamin Graham, The Intelligent Investor, 4th ed., 2003, chapter 1, page 18.
  13. ↑ Benjamin Graham, The Intelligent Investor, 4th ed., 2003, Chapter 1.
  14. ↑ The Intelligent Investor p. 524 (Revised Ed 2006)
  15. ↑ Benjamin Graham, "The Intelligent Investor", 4 ed., 2003, Chapter 20.
  16. ↑ The Economist, Benjamin Graham: Figuring it out. July 7th, 2012.
  17. ↑ Buffett, Warren E.: "Benjamin Graham", Financial Analyst Journal, November/December 1976.
  18. ↑ Financial Analysts Journal, November/December 1976. (Reprinted on page x of the preface to revised Fourth Addition of The Intelligent Investor.)
  19. ↑ Bloomberg, Benjamin Graham’s Clever Idea for Averting Currency Wars. February 28th, 2013.
  20. ↑ Snowball, Page 164
  21. ↑ Snowball, Page 391
  22. ↑ Graham and Dodd. 1934. Security Analysis: Principles and Technique, 1E. New York and London: McGraw-Hill Book Company, Inc.
  23. ↑ Graham and Dodd. 1940. Security Analysis: Principles and Technique, 2E. New York and London: McGraw-Hill Book Company, Inc.
  24. ↑ Graham et al. 1951. Security Analysis: Principles and Technique, 3E. New York: McGraw Hill Book Company, Inc.
  25. ↑ Graham et al. 1962. Security Analysis: Principles and Technique, 4E. New York: McGraw-Hill Book Company, Inc.
  26. ↑ Graham and Dodd. 1988. Security Analysis: Principles and Technique, 5E. McGraw-Hill Professional
  27. ↑ Graham and Dodd. 2008. Security Analysis: Principles and Technique, 6E. McGraw-Hill Professional
  28. ↑ Benjamin Graham. 1949. The Intelligent Investor, 1E. Harper&Brothers, New York, 264 pp
  29. ↑ Benjamin Graham. 1959. The Intelligent Investor, 2E revised. Harper&Brothers, New York, 292 pp
  30. ↑ Benjamin Graham. 1965. The Intelligent Investor, 3E revised. Harper's, New York, 332 pp
  31. ↑ Benjamin Graham. 1973. The Intelligent Investor, 4E revised. Harper&Row, Publishers, New York, 340 pp
  32. ↑ Benjamin Graham. 1937.ISBN 0-07-024774-9 Storage and Stability: A Modern Ever-normal Granary. New York: McGraw Hill. 1937
  33. ↑ Graham and Ed. Chatman. 1996. Benjamin Graham, the memoirs of the dean of Wall Street. New York: McGraw Hill.

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