Benjamin Graham

Benjamin Graham was born in Great Britain. He was also called A Dean of Wall Street. He moved to United States, when he was a one year old. His father died, when he was nine. His family business went bankrupt a year later. His mother lost all of her money by investing in US Steel, when he was thirteen. This was his first experience with financial markets. These, aforementioned experiences, left an impression to him. They had effects on his investing and his principles for decades.

Graham was a polymath. When he graduated, he was offered teaching positions from three different academical departments: Philosophy, Mathematics and, English. He didn´t accept any of them. He went to work on Wall Street, even though he had no education for finance. His emotional education came from studying mathematics, especially geometry. This required deep and precise think for making conclusions. The biggest joy to him was developing his mind in many areas of expertise alongside investing.

His biggest achievements in finance were two books: Security Analysis and Intelligent Investor. Most of their content are still relevant after decades. Some of the principles, methods, and concepts are still used among the modern day investors. The best known concepts are Margin of Safety and MR. Market. Graham concentrated on stocks and bonds. His investment returns were not the greatest. He did better than market indices. Unfortunately, I haven´t found his investment results from the whole investing period. I have his returns from two periods: 1925-1935 and 1948-1976. Compared to returns from S&P-index, the annual returns are:

1925-1935 Graham 6.0% vs S&P 5.8% and

1948-1976 Graham 11.4% vs S&P 7.1%

In the first period, Graham didn´t get any better results than market averages, but the second period was much better. When investing into S&P index between 1948-1976 would have made you about 6.8 times your money, investing with Graham would have made you 20.5 times your money. Graham didn´t try to maximize his investment returns. He was mainly interested in keeping his money safe. Getting better returns than market indices was a byproduct. You can see this from his investment returns. Graham wasn´t one of the greatest investors. But he was maybe the greatest intellectual mind in investing. He had some thinking defects about businesses. For example, he believed that competition will eventually correct the highest profit margins into normal levels in all businesses. He missed the concept of durable competitive advantage. His most profitable investment GEICO is one example of a company like this.

Lessons from Benjaming Graham

Lesson 1. Graham´s definition of investing

Lesson 2. Investor as a business owner

Lesson 3. About analysis

Lesson 4. Qualitative analysis