Benjamin Graham

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Benjamin Graham

Benjamin Graham (born May 9, 1894 in London , born Benjamin Grossbaum , † September 21, 1976 in Aix-en-Provence ) was an influential American economist and investor . He is considered the father of fundamental securities analysis , which is the basis for value investing .

Life

Graham, who was of Jewish descent, was born on May 9, 1894, the son of a china dealer in London . A year after he was born, his family emigrated to New York . His parents changed their family name Grossbaum to Graham during the First World War , as German-sounding names were viewed with suspicion. In 1903 his father died and the porcelain business ran into trouble. Graham's single mother invested the rest of the family's assets in stocks, all of which suffered a total loss in the course of the great crash in 1907. As a result, the family sometimes lived in very poor conditions.

A few years later, Graham received a Columbia University scholarship and enjoyed an excellent education despite the family's precarious economic situation. He studied mathematics, English and Greek and graduated in 1914 after only two and a half years of study, second in his class. Although Graham received vacancies from a number of faculties, he moved to Wall Street and joined the investment firm Newburger, Henderson & Loeb. There he worked his way up from a simple clerk to an analyst and finally to a partner.

Graham was a master at stock research because he could examine companies in great detail. The best example of this is the analysis of the oil pipeline company Northern Pipe Line Co. Graham discovered high-quality bonds when looking at assets and thus identified an undervaluation of the company in the stock market. He paid $ 65 a share and three years later sold his shares for $ 110 a share.

In 1926, Graham founded the investment partnership Graham-Newman Corp. together with the broker Jerome Newman . and at the same time began teaching at Columbia University , which he remained loyal to until his retirement in 1956. His students at the time included William J. Ruane , Irving Kahn , Charles Brandes, and one of the most successful investors of all time, Warren Buffett . Buffett describes Graham's impact on his own life as follows: “To me, Ben Graham was far more than an author or a teacher. More than any other man except my father, he influenced my life. "

In 1929 the stock market crashed and Graham-Newman was not spared either and recorded a loss of around 70 percent. Graham kept his nerve and used the setback for acquisitions. While there are no detailed reports on its profits, from 1936 to 1956 the Graham-Newman Corp. an annual return of at least 14.7 percent, while the overall market only grew 12.2 percent. To date, this remains one of the best track records in Wall Street history .

In 1965 the Graham-Newman Corporation was liquidated because Graham and Newman could not find a successor for their investment partnership. Graham moved to Los Angeles and became Professor of Finance at the University of California at Los Angeles ( UCLA ). There he taught for almost ten years before he moved again and spent six months in La Jolla , California and the rest of the time in Aix-en-Provence in southern France, where he died on September 21, 1976 at the age of 82. Before that he wrote his death poem :

“This man remembered what everyone else forgot and forgot much that everyone remembered. He studied long, worked hard and smiled frequently, strengthened by beauty and captivated by love. "

- Benjamin Graham

The Intelligent Investor

Graham held the doctrine that a stock should only be bought below its fundamental value. He consequently applied the concept of intrinsic value . In order to be able to determine the value of a stock, Graham relied on fundamental securities analysis and on the use of metrics such as price-earnings ratio ( P / E ), price-to-book value ratio ( P / B ), dividend yield , leverage and earnings growth.

In 1934 Graham wrote his first work "Security Analysis" together with Professor David Dodd. The book is a detailed description of relevant techniques for financial analysis and corporate finance . Graham's best known and most influential work, The Intelligent Investor , was published in 1949 . The work has been sold over a million times to date and is often referred to as the “investment bible”. The book has been reprinted several times; the current edition appeared in 2013 with comments from Jason Zweig and Warren Buffett . The Intelligent Investor contains parts of Security Analysis, but focuses more on the fundamentals of investing and the behavior of an investor than on individual stock analysis. In relation to the relevance and practicality of his books for the investor, Graham says in an interview with Kahn and Milne:

"If he or she reads The Intelligent Investor - which I feel would be more useful than Security Analysis of the two books - and selects from what we say some approach which one thinks would be profitable, then I say that one should do this and stick to it. "

- Benjamin Graham

The basic idea of The Intelligent Investor is based on the idea of investing in companies that are traded on the stock exchange below their actual value. He is based on the assumption that the stock market does not always reflect the true value of a company, but tends to exaggerate or understate and only approach its fair value over time. Graham gave the fluctuations in the stock market a face and created "Mr. Market", a personalization of the stock market, to describe this principle. Mr. Market is a manic-depressed person who offers stocks for sale and purchase every day . The buying and selling prices of Mr. Market are often not based on rational considerations, but are driven by emotions. The intelligent investor uses the whims of Mr. Market to buy a security cheaply. Whether stocks are cheap or expensive can be determined with an analysis that Graham describes in more detail in his works. The greater the difference between the intrinsic value of a stock and the price viewed by Mr. Market, the more expensive or cheaper a stock is. Graham calls this difference the "margin of safety". To this day, Warren Buffet's investment strategy is based on Graham's approaches. Buffett writes:

"I read the first edition of this book early in 1950, when I was nineteen. I thought then that it was written by far the best book about investing ever. I still think it is "

- Warren Buffett

Benjamin Graham was also significantly involved in the development of the “ Chartered Financial Analyst (CFA) ” certification, which is intended to ensure a uniformly high standard in the training of securities analysts.

Web links

Individual evidence

  1. ^ A b c d e Kahn, I., & Milne, RD: Benjamin Graham: the Father of Financial Analysis . 1977, p. 2-24 .
  2. ^ A b c Benjamin Graham, Jason Zweig: Intelligent Investing . Finanzbuchverlag, Munich 2013, p. 12-13 .
  3. Benjamin Graham - The "father" of value investing
  4. Alice Schroeder: Warren Buffett - Life is like a snowball. FinanzBook Verlag, 2008, ISBN 978-3-89879-412-1