Buffet’s Teacher Benjamin Graham

October 20, 2009 | scorpion

Benjamin Graham is considered a legend in the stock trading and investing industry. He was an excellent financial educator, investment manager and author. Even today, thirty-three years after his death, two of Graham’s investment books are still used at the university level in financial investing classes.

Biography

Born in London in 1894, Graham was one years old when his family immigrated to the US. He was raised in Brooklyn and Manhattan during a time of economic hardship, losing his father at the age of nine. It was at this point that the young Graham became obsessed with obtaining financial security for himself and his family. As soon as he graduated from Columbia University he got a job on Wall Street with Newburger, Henderson & Loeb. He started as messenger for the firm and within six years worked his way into a partnership with the company.

In 1926 he and Jerome Newman started their own investment partnership and he became a regular lecturer at his alma mater of Columbia University. He lectured on finance until he retired in 1956. Three years after he formed the partnership with Newman, Graham lost everything in the 1929 stock market debacle. The firm eventually turned the corner by surviving, gaining experience from the lesson it learned. When Graham retired in 1956 the partnership was dissolved at 17% average return annually. Graham passed away in 1976.

Claim to Fame

Graham is looked at as the father of value investing and security analysis, two fundamental disciplines in the investing industry. He was also looked on as an important ‘thinker’ in the industry when it came to portfolio investment, developing it from what was considered an art to a disciplined science.

In addition to his work in the stock trading field, Graham was also the mentor to well known stock trader of today Warren Buffet in addition to other well known names in the field.

Why was he successful?

It is hard to outline Graham’s very detailed investment strategy. He felt that any investor should thoroughly analyze the investment they were considering and that it should give them more than what it would cost. He made it a point to look for companies that had solid financial fundamentals or had very little debt and a good cash flow with above average returns to invest in.

The term ‘margin of safety’ was first used by Graham to describe companies who were undervalued with low stock prices but sound fundamentals. According to Graham, it was the difference between a stock’s cost price and the intrinsic value it held. The larger the margin, the safer the stock and the overall investment. He also strongly believed that stock prices were usually wrong and that smart investors should buy judiciously when their is a sharp fall in price and sell judiciously when the price rises.

Publications

Graham was the author of the following books on stock trading and investment:

* "Security Analysis" (1934) by Benjamin Graham and David Dodd

* "The Intelligent Investor" by Benjamin Graham (1949)

* "Benjamin Graham: The Memoirs Of The Dean Of Wall Street" by Benjamin Graham and Seymour Chatman (editor) (1996)

* "Benjamin Graham On Value Investing: Lessons From The Dean Of Wall Street" by Janet Lowe (1999)

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