Benjamin Graham is one of the most famous investors in history. Also, he was someone who changed the way society thinks about stock investing and trading. Starting with Graham, financial asset traders were no longer seen as mere speculators, and the importance of investing in value for the health of an economy, the American in this case, became aware.
In this biography, we propose you learn about the life of Benjamin Graham, nicknamed “the father of value investing“, and learn about his investment principles, his personal philosophy and how he understood markets and finance. Join us with your reading!
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Life of Benjamin Graham
Graham was born on May 8, 1894 in London, under the name of Benjamin Grossbaum. After a year of life, the Grossbaum family immigrated to the United States, and in 1917 the family changed the surname to Graham to avoid Grossbaum’s relationship with his German origin, since in the middle of World War I this was frowned upon.
Benjamin’s father died when he was very young, forcing him into a childhood of poverty and early work. Even so, little Graham studied and received finance at Columbia University, for only 20 years. Despite having several job offers, his decision was to settle on Wall Street and found the Graham-Newman Partnership firm.
From his own fund, Graham forever changed the way of investing in company shares. With his concept of investing in value, and through the figure developed in his Mr. Market books, he installed ideas and currents of thought about stock trading that are still discussed in business schools around the world today.
Benjamin Graham’s investment formula
Let’s learn a little about how Benjamin Graham invested during the first half of the last century. At that time, buying and selling shares was seen as something purely speculative. Graham changed that view of financial markets from his position as an investor and from his active role as a professor at Columbia University and as a writer.
Graham put into words the strategy of “value investing” or investment in value. This involves some concepts such as:
- What matters to the investor to enter a position is the value of the business, not the price of the share. If the price is below the value, it is a signal to buy and to stay there until both variables align.
- Otherwise, if the value is less than the price, it is not an asset that we should be interested in.
Graham graphed this with the figure of Mr. Market (Mr. Market), who is a character who knocks on the investor’s door every day to offer him shares. The funny thing is that Mr. Market has bipolar disorder, so he offers crazy prices all the time. The investor’s task is to be able to see behind the situation, the crazy price that Mr. Market offers, if what he offers us is worth more or less than the price at which he offers it.
In this way, Graham makes the effective division between true speculation without sense, or rather, with the sole purpose of benefiting in the short term from the madness of Mr. Market, with the investment, which is the effective bet on an asset with a solid and substantial base in the long term.
Books by Benjamin Graham
Benjamin Graham wrote several books, although there are two that are practically the Bible for every self-respecting trader. We refer to “Security Analysis” (1934), which he wrote in collaboration with David Dodd, and “The Intelligent Investor” (1949). Warren Buffet, who was his student at Columbia and who regards him as a father to him, has called this book “the best book on investing ever written.”
It is in Security Analysis, however, where the concepts of value investment are most developed from a technical point of view. It says textually: “An investment operation is one that, after a meticulous analysis, promises security of the principal and a satisfactory return on investment. An operation that does not meet these requirements is speculative.
Graham also wrote in 1929 “The Interpretation of Financial Statements“, in collaboration with Spencer B. Meredith and an autobiography that he titled ” The Memoirs of the Dean of Wall Street “, where he reviews his years in the heyday of the financial world of the United States.
Benjamin Graham: The Smart Investor
We stop for a bit to analyze and recommend this book by Benjamin Graham, since it is a cornerstone for trader training. Published in 1949, “The Intelligent Investor” provides the reader with a huge battery of strategies that make it easier for us to succeed in investing in the stock market.
Acclaimed by the financial world during its more than 70 years of existence, it is the book recommended by personalities such as Warren Buffet, Peter Lynch, Bill Gates and others.
In this book, Graham proposes an investment method that is based on selecting a group of value companies and positioning themselves in them for the long term. He calls it the simple earnings criteria, and it’s based on choosing a set of stocks from undervalued companies, buying a share, and staying there for a long period of time. If companies also pay dividends, that’s a nice plus.
According to the order, buying a share is being part of a business. Therefore, it is not so important if its price goes down or up intraday or in a week, but rather what is fundamental for us is what will happen to that business in a while.
Benjamin Graham Quotes
Benjamin Graham was a sage without a doubt. Even today, we talk about him more for his role as a writer and teacher than for his successful career as a fund manager. From his books, interviews and dissertations we can obtain valuable lessons for investing from Benjamin Graham that he has left us in the form of phrases and aphorisms. We invite you to enjoy the genius of this trader!
- “There are two rules for investing: the first is don’t lose money and the second is that you never forget the first rule.”
- “Mr. Market is a schizophrenic in the short term, but he’s sane in the long term.”
- “Achieving satisfactory investment results is easier than people think. Achieving superior results is much more difficult than it seems.”
- “People who cannot control their emotions are not suitable for profit through investing.”
- “Even the savvy investor is likely to need considerable willpower not to follow the crowd.”
- “You will not be right or wrong because the crowd disagrees with you. You will be right because your data and your reasoning are correct.”
- “The investor’s main problem, and even his worst enemy, is probably himself.”
- “The really horrendous losses always come after the buyer forgot to ask how much it cost.”
- “The market is like a pendulum that always swings between unsustainable optimism (making assets too expensive) and unwarranted pessimism (making assets too cheap). The intelligent investor is a realistic person, who sells to optimists and buys to pessimists.”
- “Be careful with projections, it is absurd to think that the general public can make money from market projections.”
Final notes
Thus we conclude our biography on Benjamin Graham, author of one of the best trading books in history and successful investor. Knowing the person and the thought of this remarkable character is a tool that, as traders, we must deepen. In his life lessons, we will also have the opportunity to improve.
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