ValueInvest.Wiki
← Back to Masters

Benjamin Graham

The father of value investing, author of Security Analysis and The Intelligent Investor, who developed the core principles of margin of safety and intrinsic value analysis.

value-investingsecurity-analysismargin-of-safetyintellectual-father

Benjamin Graham (1894-1976)

Born: May 8, 1894 (London) Died: September 21, 1976 (New York) Education: Columbia University Career: Investor, author, professor

Overview

Benjamin Graham is widely considered "the father of value investing." His books — "Security Analysis" (1934, with David Dodd) and "The Intelligent Investor" (1949) — established the intellectual framework that warren-buffett would later refine and practice.

Key Contributions

1. Margin of Safety

Graham's foundational concept: always buy at a price significantly below intrinsic value to protect against errors.

2. Intrinsic Value

The idea that every business has a "true worth" independent of stock price, which can be estimated through fundamentals.

3. Mr. Market

Graham created the "Mr. Market" mental model — a personification of market irrationality that investors could exploit.

4. Cigar-Butt Investing

Graham's original approach: find mediocre businesses trading below net-net working capital. "A cigar butt found on the street has one free puff left."

The Intelligent Investor

Published in 1949, "The Intelligent Investor" is considered the most important investment book ever written. Buffett has called it "the best book on investing ever written."

Key Lessons

  • Investment vs. speculation
  • The margin of safety
  • Mr. Market
  • Defensive vs. enterprising investor strategies

Graham's Formula

Graham developed a quantitative formula for defensive investors:

Intrinsic Value = EPS × (8.5 + 2× Expected Growth Rate)

If the stock trades below 2/3 of this value, it represents a buying opportunity.

Graham's Influence

On Buffett

Buffett studied under Graham at Columbia Business School (1950-1951). Graham hired Buffett at Graham-Newman Partnership.

Buffett has said: "My investment approach has been 15% Fisher and 85% Graham."

On Munger

Munger also studied Graham's work, though he pushed Buffett toward "wonderful businesses at fair prices" rather than Graham's cigar-butt approach.

Famous Quotes

"The key to investing is not assessing how much an industry is going to affect society, but determining the competitive advantage of any given company."

"In the short run, the market is a voting machine. In the long run, it is a weighing machine."

"The investor's chief problem — and even his worst enemy — is likely to be himself."

Key Holdings

Graham's Graham-Newman Partnership held:

  • GEICO (which Buffett later discovered)
  • Northern Pipe Line
  • Various net-net working capital companies

Legacy

Benjamin Graham created the first systematic, rules-based approach to investing. His students include:

Related