“The intelligent investor is a realist who sells to optimists and buys from pessimists.” – Benjamin Graham, The Intelligent Investor
4 min read
Benjamin Graham is widely recognized as the father of value investing.
He was born as Benjamin Grossbaum on May 9, 1894, in London as the oldest son into a Jewish family.
When Graham was one year old, his parents, Isaac M. and Dorothy Grossbaum, migrated to the US. They lived in New York, where Isaac began an export-import trade.
His childhood was really traumatic.
He was just a nine-year-old boy when his father Isaac died. Graham’s mother Dorothy stayed alone to take care of Benjamin and his two younger brothers, Leon and Victor.
Fathers death was one just a first in serial of unfortunate events.
His mother Dorothy stayed to manage the family business but the Bank Panic stole her savings 1907, four years after her husband died.
The family was dumped to poverty. Almost over the night, they lost everything.
And finally, the family was forced to move in with her brother.
But Benjamin Graham didn’t give up. He worked harder on himself.
He became a really good student. Graham was an excellent student at school. He entered Columbia University on a scholarship.
He graduated in 1914 as salutatorian of his class at Columbia.
Salutatorian is an academic title. This honor is known in the United States and the Philippines. This means that Benjamin Graham was the second-highest-ranked graduate of the entire graduating class.
Frankly, this is the point where the whole story began. Graham was in his 20s when he took a brave and unusual action. But this step led him to the fortune.
Few weeks before his graduation, he got an offer from Columbia University to teach math, English, and Greek and Latin philosophy.
He refused it. Despite the opportunity to finally have financial security.
What he did instead?
Graham joined The Wall Street.
At first, he was a messenger at the Newburger, Henderson, and Loeb. That was a brokerage company at The Wall Street.
It was almost a revolution.
At that time university graduates did not see stockbroking as a professional choice.
His first job was to write scores on the blackboard.
But he was an intelligent, smart and with good educational background. The field of his responsibilities rose very soon. The brokerage’s owners gave him to work on financial analyses for the firm.
After 6 years of working for this brokerage, he became a partner of Newburger, Henderson, and Loeb. It happened in 1920.
At that time he changed his name, to better suit the Wall Street background.
And soon, he was earning $50,000 per year. Not bad for 25 years old young man.
That was not the end of his ambitions. His marvelous mind couldn’t be satisfied with such a position. Six years later, he founded with his colleague Jerome Newman, a ”Graham Newman Co.”
And they both showed extraordinarily capabilities.
The first winning
They implemented some advanced strategies. Their goal was not only to secure their clients’ investments. They provided them a 670% return in a ten years time frame.
How they did it?
Well, it was kind of controversy betting.
It was like this.
They would bet that some stock price would be going up but at the same time, they were putting the bet that the price of some other stock would be going to fall. It was a simultaneous betting.
At this way, they could entirely use accessible resources, and not to hold cash positions.
They were beating leading mutual funds by 40%.
And it was beginning of one marvelous career.
Graham made an extraordinary discovery in 1926.
That one provided him a leading position in the market. It was so called Northern Pipeline Affair.
It was all about the Rockefellers and their business. Their Standard Oil was separated into 34 autonomous companies in 1911. Wall Street didn’t know anything about their finances. Well, actually, they knew nothing about them.
Until the Interstate Commerce Commission demanded all pipeline companies to file financial reports.
Going through these statements, Graham paid attention to one Northern Pipeline Company. In order to have a better view, he traveled to Washington.
What a surprising revelation was waiting for him.
The Northern Pipeline was trading at $65 per share. Also, the company owned railroad bonds at $95.
Graham revealed that the company could issue its assets without the mediators.
Benjamin Graham: The father of value investing
And he began to purchase the company’s stock, getting 5% of it in 1926.
And here was the twist.
Graham demanded owners to issue the access asset to all shareholders stated they were legal owners. He was refused, of course.
One year later, at the time of the shareholders’ meeting, Graham announced his proposal to his shareholders. He was refused again.
Benjamin Graham decided to hire a law firm, and tried to find proxies.
The negotiations with Rockefeller’s Foundation ended without result.
And spectacularly turnover!
The greatest winning
At the beginning of 1928, Graham had got proxies for approximately 37.50% of the company’s shares.
The new meeting with shareholders held in that year was a turning spot in his career.
Northern Pipeline had to accept Graham’s election to its board. Moreover, they issued $70 per-share of excess liquid assets to its shareholders.
Rockefeller invited Graham for a meeting. After that meeting, Rockefeller urged other branches to share excess liquid cash among its legal owners.
It was a great Graham’s victory!
The ”Northern Pipeline Affair,” set Benjamin Graham as an excellent analyst and a shareholder protector.
In 1929, during the Great Depression, Graham Newman Partnership despite the great lost continued to work. They managed to recover their assets, and never lose again.
Their average annual return was of 17% until 1956.
But the Great Depression was the great inspiration to Graham too.
Benjamin Graham’s legacy
He published his first book, ‘Security Analysis’ in 1934, the first book that dealt with the art of investments.
Five years after, Graham published his fundamental work, “The Intelligent Investor”. All that time, he had a significant position in the stock market.
His market play was: buy shares and trade them lesser than the companies liquidation value, which provided him minimum risks.
Benjamin Graham’s play in the stock market excited many young investors. One of them was Warren Edward Buffett. Also, William J. Ruane, Seth Klarman, Bill Ackman, and Charles H. Brandes also considered themselves to be Graham’s followers.
They all employed his value investing techniques. And they expanded them to all markets all over the world.
Benjamin Graham’s masterpieces are “Security Analysis” and “The Intelligent Investor”.
In “Security Analysis”, he explicitly differentiated between investment and speculation. The subject of his ‘The Intelligent Investor’, is value investing.
We are sure you heard about “Benjamin Graham formula”.
It is published in “The Intelligent Investor”.
This formula can help the investors to instantly discover if their stocks were priced reasonably.
Benjamin Graham married thrice.
His private life is not known well. Graham had at least three sons.
On September 21, 1976, Graham died in Aix-en-Provence, France, at the age of 82.
The bottom line
It really looks so easy to be a great investor. Actually, it isn’t. But it is so easy to be an investor. Even with a little money.
And there are no limitations to try it.
Investing is so simple these days. You can get all the help you need. Also, you may implement some of the algo techniques. Or you can use robo advisors.
All of them are present in the market to help you to gain your profit. So, why to wait?
Go! Try your hand!
Who knows, maybe you, yes, you, you can be the next Benjamin Graham.
We are sure you are next.
Don’t waste your money!