MENU

3 Important Quotes From Investing Legend Benjamin Graham

The late Benjamin Graham, author of the classic investment text, The Intelligent Investor, is thought of as the father of value investing. He was also an inspiration to Warren Buffett and helped provide the foundation for Buffett to be the successful investor he is today.

Besides being an astute investor who was able to find undervalued stocks in the market, Graham was also a well-respected educator who taught at Columbia University and the University of California.

I continue to learn from Graham’s teachings and constantly gain inspiration from some of his memorable quotes on investing that are found in his books and interviews. Here are three quotes that I think can help investors of all stripes become better.

“A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.”

Investors may sometimes forget two important things about a stock: (1) That it represents a part-ownership in a company; and (2) that its value can be calculated from the underlying assets it owns, or by estimating the future cash flows its underlying business can produce.

As investors, we therefore should not rely on mere  price movements to gauge the value of a stock. In practice, a company’s stock price may sometimes deviate far from its true value.

“Astute observers of corporate balance sheets are often the first to see business deterioration.”

Graham believed strongly that a company’s balance sheet provided an investor with a peek into the company’s well-being. It can tell us when a company is struggling with debt, or when its assets cannot be meaningfully sold.

Graham also introduced the world to the idea of the margin of safety in The Intelligent Investor. The concept of the margin of safety is that investors should only pay less than the value of the company’s book value (total assets minus all liabilities). In this way, investors can sleep easy knowing that if the company had to liquidate all its assets, they would still profit from the liquidation.

“And I suspect that Graham and Dodd have been ignored by those who suffer from the misconception that trying to make serious money requires that one take serious risks.”

The stock market can be risky for investors who try to time the market or want to profit from the short-term volatility of stocks. However, for the long-term investor, the stock market can provide stable returns that are relatively predictable and less risky. For instance, the Straits Times Index (SGX: ^STI), Singapore’s stock market benchmark, has never had delivered a loss over any rolling 20-year period from 1992 to January 2016.

As long as we invest with the right principles and sound investment concepts, we can reduce risk while reaping good returns on investments.

The Foolish bottom line

Benjamin Graham may have written his investment books well over 60 years ago. Yet most of his investment principles still apply today. Hopefully, the quotes from him that I’ve shared above can remind us as investors to have the right mindset when thinking about stock market investing.

Meanwhile, for more (free!) investing insights, sign up here for your FREE subscription to The Motley Fool's investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

Like us on Facebook to keep up-to-date with our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.