Biography

Graham was born in 1894 in London to a Jewish family, originally named Grossbaum. At the age of one, his family immigrated to the United States. His father, a porcelain manufacturer, passed away when Graham was just nine years old. To support the family, his mother started a home boarding school.

Graham’s character was shaped by his experiences growing up in poverty in New York, where he learned to rely on his intellectual abilities to survive. He once said:

"The years of poverty taught me to take money seriously, to be willing to work hard even for very little, and to approach all expenses with extreme care and thoughtfulness."

Education

Thanks to outstanding entrance exam results, Graham earned a scholarship to Columbia University, where he graduated in 1914 with a bachelor’s degree. He was offered teaching positions in three faculties: Literature, Mathematics, and Philosophy.

Career

Instead, Graham joined the Wall Street brokerage firm Newburger, Henderson & Loeb as a messenger and an apprentice in the bond department, earning $12 per week. His job involved updating bond and stock prices on the quotation board.

During his university years, Graham honed a critical mindset and became a seeker of solutions, which he considered a significant advantage in the financial world. This skill allowed him to solve problems quickly and avoid wasting time.

By the age of 25, he was earning about $500,000 annually. However, the stock market crash of 1929 nearly wiped out his investments, teaching him valuable lessons about the world of investing.

Graham-Newman Corporation

After nine years on Wall Street, Graham co-founded the Graham-Newman Corporation with Jerome Newman in 1926. This investment firm later employed Warren Buffett. From 1928 to 1956, while managing the company, Graham also taught finance at Columbia University.

Theories

Benjamin Graham is often referred to as the "father of value investing," particularly for his approaches that are called "value investing" or "investment values." According to Graham and his colleague David Dodd, one should determine the true or intrinsic value of a stock, independent of its current market price. To calculate intrinsic value, investors examine a company’s financial condition, including its assets, earnings, and dividends. This was the original formula.

Then, in 1974, the formula was revised to include both a 4.4% safety rate, which was the average yield of high-grade corporate bonds in 1962, and the current yield of corporate bonds.

Once the intrinsic value is known, it is compared to the market price of the stock. If the stock is trading at a price lower than its intrinsic value, it is considered a good purchase. The idea is that, over time, the market price and the intrinsic value will "revert to the mean" or move closer to each other. This means that the stock price will eventually rise to align with its true value.

Books

Graham authored several influential books, the most famous being The Intelligent Investor: The Definitive Book on Value Investing, which Warren Buffett considers the best book ever written on investing. You can read the book by downloading it directly from Cube Invest Telegram channel.

Other notable works include Security Analysis (1934), co-authored with David Dodd, and Interpretation of Financial Statements (1937).

Benjamin Graham’s methods are rooted in rationality and the principle of a margin of safety, offering timeless formulas to navigate market complexities. His legacy lies not only in his profound knowledge but also in the inspiration he provided to generations of investors and thinkers, ensuring the continued relevance of his principles.

Investment Philosophy

Graham’s investment philosophy is not about succumbing to fleeting market trends or short-term speculation but rather about patience, discipline, and value. Here are some of his most notable quotes:

"Price is what you pay. Value is what you get."

Instead of seeking cheap stocks, Graham emphasized finding undervalued stocks. He believed in investing in companies with consistent profits rather than chasing stocks selling below their intrinsic value without stability.

"The investor's chief problem—and even their worst enemy—is likely to be themselves."

Discipline is crucial in investing. Avoid emotional decisions, such as selling during market downturns or buying impulsively during rallies. Every move should aim for long-term success.

"Decide what kind of investor you are."

Graham encouraged investors to understand their investment personalities. He made clear distinctions between various groups operating in the stock market to help investors align their strategies with their individual goals.

The approaches of Benjamin Graham are based on the principles of rationality and the margin of safety, which have created timeless formulas for better coping with the complexities of the market. Graham's legacy is not only in the wealth of knowledge but also in the many investors and thinkers inspired by him, ensuring the transmission of his principles from generation to generation.