Benjamin Graham
Benjamin Graham is known as the ‘father of modern security analysis’. His seminal book Security Analysis, co-authored with David Dodd in 1934, is still regarded as one of the most important texts on investing ever written. During his investment career of 1929 to 1956, his average return was approximately 17% per year, easily beating the indices.
Graham encouraged investors to look at the underlying business before buying a stake in it. He taught that the numbers were what mattered, and that diligent research into a company’s balance sheet and income statement could turn up bargain-priced shares. His idea was that a company had an underlying value that could be estimated.
Graham also believed that market fluctuations in share prices should be ignored. Prices existed simply to tell you if someone was willing to sell you a stake in a business at a good price or not (this is called the parable of Mr Market).
Finally, Graham proposed the concept of margin of safety. This stated that investors should only buy shares in companies where there was a sufficient discount to what they had calculated as the company’s value. These concepts are the basis of value investing. Graham is therefore regarded as the founder of the school of value investing although his work has been built upon by Warren Buffett, who was one of Graham’s students.
Further Reading
- This article from Motley Fool will give you some more background on Ben Graham, with links to his major publications.
- Considered to the be the bible of fundamental analysis, The Intelligent Investor may well change how you think about investing—for the better.
