Simple Investing Advice from the Father of Value Investing: Ben Graham

Ben Graham is often considered the father of value investing. He began teaching the investing approach in 1928 at the Columbia University, with billionaire Warren Buffett as one of his most illustrious students. Graham was also known for being able to deliver his lessons effectively.

Pop Quiz!

Speaking of lessons, I came upon an interesting article yesterday about a little game that Graham would design to teach his budding students about investing. The game that he would use went a little like this:

“He gave us a quiz,” Buffett said, “A true-false quiz. And there were all these guys who were very smart. He told us ahead of time that half were true and half were false. There were 20 questions. Most of us got less than 10 right. If we’d marked every one true or every one false, we would have gotten 10 right.”

The interesting bit about the the quiz was that the participants already knew ahead of time that half the questions were true and the other half was false. But despite this information, all the “smart folks” in the class went ahead and attempted to outsmart the quiz. As it turns out, the results were less flattering than their attempts with most of them scoring less than 10. As Buffett would note, if the “smart folks” would have simply taken the common sense route of marking all of it true or false – they would have gotten at least 10 of the questions right.

Therein lies a simple lesson on the nature of investing.

Attempting harder investment ideas does not necessarily translate to higher returns. So, it stands to reason that Foolish investors might want to consider filtering out the harder ideas no matter how enticing it may seem. As I have shared before, tossing difficult ideas into the “too hard” pile could be the action that investors should do the most.

Lest we forget, investing does not always have to be in individual company shares. A simple approach of dollar cost averaging into the SPDR STI ETF (SGX: ES3), might be a consideration for long-term investing as well. The SPDR STI ETF is a proxy to the market barometer, the Straits Times Index (SGX: ^STI).

My fellow Fool, Ser Jing demonstrates here on how putting aside $500 per month in 2003 would have turned the $6,000 invested for the year to $13,500 in 2013. That would more than double the initial pot of money in 10 years.

Foolish take away

As Foolish investors, we have a choice on the investment ideas we consider and where we put our hard-earned money. In case this sounds like an intellectual cop-out from difficult investment ideas, do consider this statement from billionaire investor and Buffett’s right hand man, Charlie Munger:

It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent. There must be some wisdom in the folk saying, it’s the strong swimmers who drown.

It is worth noting that both Buffett and Munger are widely viewed as two of the most successful investors in history after helping their company, Berkshire Hathaway achieve a compounded annual growth rate of 20% in its book value over close to 50 years. And, the duo did it by trying to be “consistently not stupid”.

When you have the consistency in investing advice — “to be less stupid” — coming from the trio of Graham, Munger and Buffett, Foolish investors may do well to consider following their footsteps.

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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 Chin Hui Leong owns shares in Berkshire Hathaway.