Benjamin Graham – Economipedia

Born in 1894, Benjamin Graham was an American investor who is considered the father of “value investing”. His investment style went from being described as a simple speculation to a new strategy.

Such has been the impact of Benjamin Graham’s investment strategy that his legacy had a great influence on investors of the stature of Warren Buffett.

Thus, Graham’s investment strategy differentiated between investment moves and speculative moves. Thus, investment operations provided substantial returns, something that did not happen with speculative operations.

Graham’s beginnings and his arrival in the world of investments

Despite being born in London in 1894, his family moved to New York City a year later. Due to the death of his father, Graham’s mother invested the family’s savings in the stock market. The result was disastrous, and in 1907, as a result of the banking panic, the family went bankrupt.

Despite financial difficulties, Graham showed great dedication to his studies and graduated from Columbia University. He soon began working in the fast-paced world of Wall Street at the Henderson & Loeb company.

There he worked as a stockbroker, working with securities, checks and bonds. Thanks to his dedication, he soon progressed through the investment firm and became a partner.

But his professional ambitions led him to found the Graham & Newman company in 1926. He was not only a top-tier investor, but also developed his professional activity as a professor at Columbia University.

Benjamin Graham and value investing

His personal experience, with his family ruined and the subsequent crash of ’29, had a profound impact on the way Graham made his investments. Thus, Graham was concerned with minimizing risks.

See also  TaxDown, the application to make the income declaration correctly and ensure maximum savings

For this reason, Graham argued that, if the real value of a company was higher than the market value, every investor should keep buying and holding the shares while waiting for the price to increase. On the contrary, if the real value of the company is lower than the value set by the market, the investment will be inadvisable.

The market

Graham believed that markets were fully efficient and that, despite fluctuations, there would come a time in the long run when they would reach stability.

In this context of short-term fluctuations and long-term equilibrium, the investor’s role will be to take the offers or decline them.

Hence, Graham referred to the market as Mr. Market, comparing it to someone with bipolar disorder who abruptly changes behavior, which would be the fluctuations.

Another concept of great importance in Graham’s thesis is the safety margin. The margin of safety implies that the lower the price of a share is compared to the market price, the greater the security of the operation.

Finally, it should be noted that Graham, in his eagerness to minimize investment risk, advocates diversification. For this, he defends that it is necessary to have an investment portfolio made up of shares of 40 different companies.

investment and speculation

Benjamin Graham approached investment and investment speculation through what was called Security Analysis. For this analysis, it was necessary to make a detailed assessment of the companies in which it is intended to invest.

Among the aspects that must be taken into account when investing, the advantages and disadvantages and the different types of securities must be assessed. Likewise, it will be essential to invest in the most rational way possible, as well as to acquire the shares with an adequate security cushion.

See also  What kind of income exists 👉 And how to grow it

Regarding investment and speculation, Graham points out that investment operations are those that are carried out in safe conditions and offer significant returns. In contrast, speculative operations do not include either of these two characteristics.

Benjamin Graham’s Legacy

There is no doubt that Benjamin Graham is one of the great masters in the world of investments. His works, The Intelligent Investor and Security Analysis, have been very useful to many investors.

Warren Buffett himself, considered one of the most successful investors, studied at Columbia because he wanted to absorb Graham’s valuable knowledge. In his investments, Buffett has always taken into account concepts such as the safety margin and the intrinsic value or real value of the company.

Other well-known investors who have been inspired by Graham’s ideas include Walter Schloss (who worked for Graham himself), Irving Kahn, Seth Klarman, Bill Ruane, and Bill Ackman.

Leave a Comment