Bio & context
Father of value investing and mentor to Warren Buffett, who established the fundamental principles of buying stocks below intrinsic value.
Benjamin Graham (1894-1976) is considered the father of value investing and security analysis. After graduating from Columbia University, he started his investment partnership in 1926. Despite losing 70% during the Great Depression, he refined his approach and achieved 17% annual returns from 1936-1956. Graham taught at Columbia Business School for 28 years, where his students included Warren Buffett, Irving Kahn, and Walter Schloss. His books 'Security Analysis' (1934) and 'The Intelligent Investor' (1949) became the foundation of modern value investing. Graham pioneered concepts like margin of safety, Mr. Market, intrinsic value calculation, and the distinction between investing and speculation. He also developed quantitative screens for finding undervalued stocks.
Philosophy in their own words
The margin of safety is the cornerstone of investing. Price is what you pay, value is what you get. Be an investor, not a speculator.
Approach & method
Systematic analysis of financial statements to find stocks trading below intrinsic value. Use quantitative screens (P/E ratios, P/B ratios, current ratios, debt levels) to identify deeply undervalued securities. Diversify across 20-30 stocks to reduce risk. Focus on downside protection through margin of safety.
Key strategies
- 1. Margin of Safety: Buy stocks at significant discounts to intrinsic value (typically 30-50%)
- 2. Graham Number: Stock price should not exceed √(22.5 × EPS × Book Value per Share)
- 3. Mr. Market: Treat market volatility as opportunity, not instruction
- 4. Defensive Investor Screen: Low P/E, adequate size, strong balance sheet, dividend history
- Graham-Newman partnership: 17% annual returns (1936-1956)
- Professor at Columbia Business School (1928-1956)
- Wrote Security Analysis (1934) and The Intelligent Investor (1949)
- Mentored Warren Buffett, Irving Kahn, Walter Schloss
- Established fundamental analysis as a discipline
- Created the concept of margin of safety
- Introduced Mr. Market allegory
- Developed Graham Number for stock valuation
Key metrics
- 17% annual returns over 20 years (1936-1956)
- Net-net strategy (buying below liquidation value) often returned 20-30% annually
- Zero losing years from 1936-1956
Strategies by this trader
Recommended reading
- The Intelligent Investor: The Definitive Book on Value Investing
- Security Analysis (with David Dodd)
- The Interpretation of Financial Statements