Benjamin Graham
high confidence — compiled with source citation from the investment brain.
Benjamin Graham
Benjamin Graham
Benjamin Graham (1894–1976) is the foundational figure of value investing, and the intellectual ancestor of both warren-buffett and howard-marks. He taught finance at Columbia Business School, wrote Security Analysis (with David L. Dodd) and The Intelligent Investor, and directly trained Buffett in his 1951 class.
Graham's influence runs through the Berkshire letters as a named authority. Buffett calls The Intelligent Investor "by far the best book on investing ever written" and quotes its closing line — "Investment is most intelligent when it is most businesslike." He credits reading its Chapter Eight, on how an investor should view stock-price fluctuations, as the moment "the scales fell from my eyes, and low prices became my friend."
Two Graham concepts dominate the letters. The first is margin of safety: Buffett writes that Berkshire insists on a margin of safety in its purchase price, a principle "so strongly emphasized by Ben Graham" that he treats it as "the cornerstone of investment success." See margin-of-safety. The second is the distinction between price and value, summed up in Graham's aphorism that Buffett quotes repeatedly: "Price is what you pay; value is what you get."
Graham's Mr. Market parable appears in the 1987 letter: imagine a partner who "appears daily and names a price at which he will either buy your interest or sell you his" and whose quotations swing wildly even though the underlying business is stable. The lesson is that the market's price is a servant, not a guide — an offer to be accepted or ignored, not a verdict on value.
Graham also supplied the short-run/long-run framing that both Buffett and Marks reuse: in the short run the market is a voting machine, in the long run a weighing machine. Marks cites this in his discussion of second-level thinking, where predicting the popularity contest (voting) is different from assessing value (weighing). See second-level-thinking.
Graham's method — buying statistically cheap, often mediocre businesses at a discount — is what Buffett calls the cigar-butt technique, which Graham taught and which Buffett practiced until Munger pushed him toward quality. Marks, for his part, learned from Graham the centrality of margin of safety and the discipline of avoiding losers, and read security-analysis at Wharton as "the bible of value investing."
Graham's framework is thus the common substrate of this wiki's two principal investor traditions — Buffett's quality-and-moat approach and Marks's risk-and-cycle approach — even as the two men drew different emphases from it. See moats and cycles.
See also
Sources
berkshire-hathaway/Letters-Markdown/1984 - Letter to Shareholders.mdberkshire-hathaway/Letters-Markdown/2011 - Letter to Shareholders.mdberkshire-hathaway/Letters-Markdown/1992 - Letter to Shareholders.mdberkshire-hathaway/Letters-Markdown/2008 - Letter to Shareholders.mdberkshire-hathaway/Letters-Markdown/1987 - Letter to Shareholders.mdhoward-marks/Memos-Markdown/2015-09-09 - Its Not Easy.mdberkshire-hathaway/Letters-Markdown/2014 - Letter to Shareholders.mdhoward-marks/Memos-Markdown/Selling Out.md