Benjamin Graham was one of the most influential investors of all time. Known as the father of value investing, his works laid the foundation for many of the stock market analysis practices used today. Throughout his illustrious career, Graham wrote some of the most important texts in investing, and influenced countless successful investors and businesspeople, including Warren Buffett.
The following article takes a look at the life and times of Benjamin Graham, outlining his influential work and the impact he has had on today’s investment landscape.
Early Life
Benjamin Graham was born in London, England in 1894. Shortly after Graham’s family moved to America, he was thrust into poverty. They lost all their savings during the Bank Panic of 1907, some say this was the seed for Graham’s eventual career in investing.
Graham was a hard-working student, and received a scholarship to Columbia University. He was so successful that he graduated salutatorian of his class and was immediately offered a job on Wall Street with the brokerage firm Newburger, Henderson, and Loeb.
Very quickly, Graham began to make a name for himself in the industry and soon commanded a substantial by the age of 25. As bad luck would have it, Graham had another close call with poverty when the infamous stock market crash of 1929 caused him to lose almost all of his investments.
Although widely known for his contributions to investment, Graham’s career spanned numerous fields. He was a published author, economist, and professor, taking up a teaching position at his alma mater, the University of Colombia.
Value Investing
Benjamin Graham was renowned for his groundbreaking ideas, including the concept of value investing.
Value investing is an investment strategy that involves choosing stocks based on their intrinsic value, rather than their market price. Graham developed a formula for determining the value of any stock. This is calculated using a range of different factors, including the company’s assets, earnings, and growth. The formula has been revised over time to encompass additional factors for improved accuracy.
Knowing the intrinsic value of a stock allows potential investors to compare this figure to its current market price. If the price is lower, this means the stock is undervalued and the investor should buy and hold it until the two figures converge in a process known as mean reversion. This concept was based on Graham’s understanding that markets are efficient, and will ultimately correct themselves to their intrinsic values. In a market that is often unpredictable, investing in undervalued stocks in high quality companies provides a significant margin of safety for investors.
Graham’s ideas were extremely well received, and he wrote about his investment philosophies in great length in his most popular books: Security Analysis (1934) and The Intelligent Investor (1949). Benjamin Graham followed three main investment principles throughout his career, which guided his success and of which he talked and wrote about regularly.
Benjamin Graham’s Three Principles of Investment are:
- Invest with a margin of safety
- Anticipate volatility in the market and use it to your advantage
- Know what type of investor you are, and what type of investing you are good at
By following these principles, according to Graham, an investor can minimize risk and increase their chances of success.
His Legacy
Benjamin Graham died in 1976 at the age of 82. Although it has been several decades since his death, his legacy lives on in the world of investment and economics. His influence was so great that he is still referred to as “the father of value investing.” His teachings and books are still very much relevant to modern investors, and his philosophies and concepts are still taught to this day.
Graham acquired many disciples over his career and in the decades since. One of the most notable adherents of his value investment philosophy is the business magnate Warren Buffett. Graham taught Buffett during his time teaching at University of Colombia. Buffett later went to work for Graham at his company, Graham-Newman Corporation. Through Graham’s mentoring and value investing principles, Warren Buffett went on to become one of the most successful businessmen in history and is presently the fourth richest person in the world with a net worth of over $110 billion.
Graham also taught many other notable investors who since achieved great success in the world of finance, including Walter Schloss, Irving Kahn, and Christopher Browne,
In 1960, the Dodd and Graham Award was established in Graham’s honor, named after himself and the economist and financial analyst David Dodd. The award acknowledges those who have excelled in research and financial reporting for the Financial Analysts Journal.
At DYF Investing, we’re certainly grateful for the work Benjamin Graham carried out. Value investing is a sound way to approach the stock market so you can either spend years learning how it works or you could sign up and let us do it for you. Check out the easiest way to find great stocks at DYF Investing.
