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The Father of Value Investing, Benjamin Graham, And What We Can Learn From Him

BenjaminGraham

In the world of martial arts you have Ip Man and Bruce Lee, while in the world of investing no one should forget Benjamin Graham and Warren Buffett. Dubbed the “Father of Value Investing” and “Dean of Wall Street”, Benjamin Graham is famous for 3 things: 1) his books Security Analysis (1934) and The Intelligent Investor (1949); 2) being one of the creators of the current Institute of Chartered Financial Analyst; and 3) being the mentor to arguably the most famous investor of all time, Warren Buffett.

Being such a revered figure in the world of finance, let’s look at some of the events that transpired in Graham’s life that shows us why any serious investor should carefully study his teachings.

The Intelligent Investor

Benjamin Graham started working on Wall Street in New York, USA after graduating from Columbia University in 1914. He was very successful in his investments initially but lost most of his wealth during the stock market crash in the late 1920s, which was also known as the Great Depression. His experience during the depression helped shape his investment ideas and he penned them down in Security Analysis, a tome that described his method of investing and how an investor should value securities.

Years after Security Analysis was written, Graham penned The Intelligent Investor in the late 1940s, a book that, in my opinion, should be the first that any serious investor ought to start with. In it, Graham taught us not to view a stock as just a piece of paper, but rather, to see a stock as representing a part-ownership in a business.

He emphasized how investors should view the market as a business partner called “Mr. Market”, who is constantly willing to sell his interests or buy someone out. As Mr. Market is rather erratic, we should not be influenced by his irrationality and only respond to him when his offer is advantageous for us.

Chartered Financial Analyst

Graham pushed for an official certification body for the security analysis profession. He helped design and create what turned out to be the current Institute of Chartered Financial Analyst, an organisation that certifies and promotes high ethical and professional standards among financial analysts.

Warren Buffett

Graham was Buffett’s lecturer when he was teaching in Columbia University. Buffett often praised The Intelligent Investor as the best book on investing ever written. Buffett worked for Graham’s fund management company for two years before Graham retired and closed the fund. Many of Graham’s investors then turned to Buffett to manage their funds after that. This was one of the starting points that helped Buffett to create one of the best investment records of all time.

Interestingly, the late Walter Schloss, a notable value investor with a superb long-term track record, was also an employee of Graham’s at the same time with Buffett.  Schloss left Graham’s fund earlier than Buffett did and set up his own investment partnerships, investing money very successfully by using Graham’s investing-framework.

In Summary

Graham’s contribution to the investment world is beyond measure. He pushed for a more fundamental and systematic approach to investing during a time when buying a stock was considered as gambling. Any investor who has just started should pay close attention to the wisdom of Benjamin Graham.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.