Benjamin Graham was perhaps one of the most famous investors of the twentieth century. During the 1940’s and 1950’s he was one of the most influential men on Wall Street. But who was he? And what did he do?
Graham is known for being the “Founder of Value Investing”, the most common and most successful investing philosophy in history. Graham was also a great teacher, teaching several of the world’s greatest investors…
Before Value Investing
Benjamin Graham was born in London, on May 9 1894 as Benjamin Grossbaum to British-German Jewish parents. Soon after his birth, when Graham was one, the family moved to New York City.
Graham’s father was hard working and had built up a large amount of savings. In 1903, Graham’s father died at the age of 35. In 1907, the US saw the Panic of 1907, which wiped out the remainder of the family’s savings.
This crippled the family financially and soon put them on the poverty line. Graham’s mother provided for the family, while Benjamin Graham himself became a good student and got good grades.
In 1916, the US joined WWI, however, Graham chose not to enlist. Despite this, his German-sounding last name caused him to be targeted, which resulted in him changing his last name to “Graham” to sound more American.
At the age of 20, Graham graduated from Columbia University, graduating salutatorian of his class. Due to this, he received an offer to become a professor of English, Mathematics and Philosophy, which he declined.
Instead, Graham took a job on Wall Street as a stock trader, where he was involved in the “The Northern Pipeline Affair“, involving John D. Rockefeller. Soon after this, Graham founded Graham-Newman Partnership, a securities trading company.
Value Investing
In 1934, David Dodd and Benjamin Graham co-authored one of the two founding books of value investing: Security Analysis. This book details how you can determine the true value of a stock.
Security Analysis focused a lot on the climate of Great Depression, which was happening at the time. This book also helped to set the ground work for The Intelligent Investor, the book that truly founded value investing.
In 1949, 15 years after publishing Security Analysis, Benjamin Graham alone wrote The Intelligent Investor. This book followed on from Security Analysis, citing it on multiple occasions.
The Intelligent Investor focused more on how value investing as a whole worked, rather than valuing a stock. Benjamin Graham revolutionized the way people consider themselves as investors.
Graham wrote about the different types and strategies of investors and, more importantly, how they should invest using his formula. For instance, if you want to retire early, you need more stocks and less bonds.
If you’re young, you should have more stocks and less bonds. However, as you get older, you should sell some of your stock portfolio and replace them with bonds. Completely revolutionary at the time.
Response to Value Investing
Following the release of The Intelligent Investor in 1949, many were initially skeptical of Ben Graham’s new philosophy. Many people outside of Wall Street had never heard of him, and as such, didn’t trust him.
In the years following The Intelligent Investor’s release, only a handful of people tried his philosophy, despite many reading his books, including a young Warren Buffett.
Of those people who tried Graham’s philosophy, they saw great returns in their first five years. Many of these people passed it around to their investor friends, many of whom adopted Graham’s philosophy.
Despite this, many book reviews in the late 1940’s and early 1950’s claimed that value investing was just another useless investing philosophy. However, over time, this sentiment changed, as value investing became more popular.
Today, both Security Analysis and The Intelligent Investor are considered to be some of the best investing books ever written. Value investing is also the single most common investing philosophy on the planet.
It is also very rare to find a negative book review on either books, from recent years. When it comes to people wanting to start investing, most financial advisers recommend that you try value investing, first and foremost.
Teaching
Before founding Graham-Newman Partnership, Graham had been offered the job of professor of economics at Columbia University. Here, he would teach alongside his friend David Dodd.
After publishing Security Analysis, many people came to Columbia Business School to specifically learn from Dodd and Graham. One such person was Irving Kahn, known as the oldest investor in the world.
Dodd and Graham were Columbia’s biggest recruiters, despite not actually being employed in that capacity! Kahn learned more about stock market investing from Dodd and Graham whilst at Columbia before starting his own company.
Most famously, Benjamin Graham mentored Warren Buffett, teaching him almost everything he knows about the stock market today! Buffett has repeatedly praised Graham for his efforts, calling the second most influential person on his life!
After Buffett graduated, Graham left to form the aforementioned Graham-Newman Partnership. Graham employed Buffett as a securities trader, using Graham’s value investing philosophy.
Graham was also the man who mentored American-born, British investor Sir John Templeton. Again, Benjamin Graham taught him almost everything he knew about the market, before he later started his own company.
Today
Today, Benjamin Graham’s value investing is arguably the largest and most common investing philosophy on the planet. Millions of people, both beginners and professionals, use value investing to grow their portfolio.
Even according to Warren Buffett, value investing as Benjamin Graham wrote it in 1949, is ineffective. Whilst Buffett has simply adapted his investing strategy to fit the modern era, others have taken it further…
In 2006, a revised version of value investing appeared. This version would become rule one investing, something that I am personally a huge fan of, and find to be very effective for me. All based on Graham’s value investing.
Ben Graham directly taught literally hundreds of people. Today, many of them are business leaders in hundreds of industries, all over the world. Not to mention the thousands of people his books have taught.
As of today, his five most famous students are all billionaires, with a large following of their own. The richest of them is Warren Buffet, who has a net worth of $71.8 billion as of the time of writing.
Today, Benjamin Graham is remembered as the “Father of value investing”. Anyone who knows anything about the stock market has heard of Benjamin Graham, with him arguably still being the biggest name of Wall Street, 40 years after his death.
Can I Replicate What Benjamin Graham Did?
Short answer: You can’t really replicate what Ben Graham did. At least, you can’t fully replicate what he did. Graham turned his passion and knowledge of the stock market into several different businesses.
There’s also the problem that it would be a waste of time. Ben Graham has spent almost 75 years becoming the most respected investor in the world (sorry Warren), so it will definitely take some time… A lot of time.
Long answer: Yes. In theory, there is no reason why you can’t replicate what Graham did. For all we know, there is a much better investing philosophy that no one uses!
You could be the person to alter their investing strategy and accidentally uncover it. However, it will not necessarily be easy. People will question why they should give up value investing or rule one investing for your philosophy.
If you want to become a professional investor like Graham, there is one thing that will help you: biographies. You can read the biographies of the world’s greatest investors, including Warren Buffett and John Templeton.
These books often give unparalleled insight into their lives. More importantly, what makes them tick and what makes them just so successful. After doing this, you can replicate what they did.
What Can You Learn From Benjamin Graham?
Besides just reading all of the books Graham wrote, his life can also teach you a lot as well!
Don’t go With The Flow
Before Graham wrote Security Analysis and The Intelligent Investor, there were hundreds of different investing philosophies. Some of these worked (albeit not very well), but the vats majority did not.
Instead of going with what most other investors did at the time, subscribing to an obviously flawed philosophy, Graham did something about it. He spent years trying to perfect his philosophy, to yield the greatest returns.
Many of his colleagues ridiculed him for it, telling him it was a waste of time. However, he didn’t listen. He continued to research. He continued to innovate. In the end, they were using his investing philosophy.
And you can do this too. Whilst you probably won’t want to redesign value investing (save that for Phil Town), you can do it with your own good or service. If you think you can do better. Do it.
Timing
This is twofold. Graham used his investment philosophy for many years before putting it down on paper. After he was convinced to write it down and publish it, he waited a long time to do so.
He waited until the American economy had recovered fully from the Great Depression that gripped the world during the 1930’s. He published The Intelligent Investor in 1949, after the economy was booming again, following WWII.
Investing too requires you to use timing to become a successful investor. It requires you to spend countless hours pouring over hundreds of documents for one stock. Not to mention timing the market to collapse…
If you want to be successful, you’ll need to time things right. You’ll need to plan ahead, just like what Graham did all those years ago. Just like what Warren Buffett and every other successful investor does.
Patience is Key
This again, is twofold. Graham spent almost 15 years refining value investing between publishing Security Analysis and The Intelligent Investor. He wasn’t afraid to take his time to get it right.
However, the art of investing too requires a lot of patience. If you invest too early, when you don’t have patience, you’ll lose all of your money. If you invest too late, when you have too much patience, you’ll also lose money.
Indeed, Graham devotes entire paragraphs in both of his books for patience. Whilst he doesn’t really describe how you can be patient, he does talk about the reasons you need to be patient.
Most successful investors understand that they aren’t going to become rich overnight. They understand that in order to become rich, they are going to have to wait, sometimes for months, years or even decades to get the results they want.
Age Doesn’t Matter
Graham was 40 when he released Security Analysis with David Dodd. For someone on Wall Street to be that young to make something like what Graham did, is almost unheard of.
The faces of Wall Street may be 25-35 in the movies (and in real life!) but the real power is much older… more like late forties and early fifties. So in many ways, Graham was very young for what he did.
And that’s part of the reason why everyone remembers him. He did something that no other 40 year old on Wall Street has ever done. And likely, no 40 year old on Wall Street will ever do.
This remind me of an old adage: “Age is just a number”. And it’s right. Age should never be an excuse for doing what you love. This is true if you want to become an investor, entrepreneur or whatever!
Do What You Know
Graham was always quite good at investing. As such, when he left university, he joined a Wall Street firm, as a stock trader. Eventually, this led to him writing his books and teaching at universities, where he met Warren Buffett.
This then led Graham to establish his own securities company, which employed Warren Buffett. After that, Buffett went out on his own… and as they say, the rest is history.
Graham kept on compounding on what he knew in order to become successful. He understood the industry well and knew what traders and investors alike wanted and delivered it.
And you can do this too! If you know a lot about the aviation industry, find out what people in that industry want. If you know a lot about the sportswear industry, find what people want. You can do this for any industry!
Did the story of Benjamin Graham inspire you? Tell me in the comments!
