Benjamin Graham - The Intelligent Investor

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Growing up and education

Benjamin was born in 1894 in London UK. At the age of only one year old, Benjamin and his family moved to New York City. 

Benjamin’s parents were Jewish and therefore changed their name from Grossbaum to Graham to avoid any negative sentiments at the time. 

When Benjamin was 7 years old, his father, who owned a successful porcelain shop, died. 

Together with the Panic of the 1907 banking crisis, caused the family to fall into poverty. This event drastically shaped Benjamin's future. 

Benjamin studied at Columbia Business School and finished his studies in three and a half years after attending when he was only 16 years old. Benjamin graduated as the salutatorian of his class. 

After which, the school offered teaching jobs to Benjamin that he had no interest in. He would rather help support his mother by taking a job on Wall Street for Newburger, Henderson and Loeb.

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Career of success

It didn't take long before Benjamin started earning life-changing money. At the age of 25, he was reportedly already earning around $500,000 per year.  

That was until the Stock Market crash of 1929 that made Benjamin lose almost all his assets. This event inspired him to write a book about market research called “Security Analysis” which was written together with David Dodd and Irving Kahn. 

The book was released in 1934 and two years later Benjamin went on starting his own company called, the “Graham -Newman Fund”.

The fund rose to fame through “The Northern Pipeline Affair”, in which his research indicated that cash bonds weren't being used optimally. 

This led Benjamin to become the first shareholder activist. 

Benjamin went on to pressure Northern Pipeline Company to fairly distribute excess cash to shareholders. After the company refused, Benjamin bought enough shares to put himself in a position to vote in favour of the matter.

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Value Investing

Benjamin, together with his colleague David Dodd has been teaching value investing as an investment method since 1928. Wanting to bundle his knowledge, Benjamin wrote The Intelligent Investor. Published in 1949 the book remains very important for investors today because of its fundamental principles.

Principle 1: Invest with a Margin of Safety. 

This principle indicates buying an asset or security at a notable discount according to it's intrinsic value. This minimises downside risk and provides high returns.  

Benjamin's goal was to buy assets that were worth $1 for 50 cents. 

Principle 2: Expect volatility and take advantage of it 

Investing doesn't come without volatility. Learn to take advantage of setbacks and look for chances for a great investment. He also writes a lot about investing without attachment to emotions.  

Mr. Market, as Benjamin describes it,  is either depressed or overly enthusiastic about the outlook of a company. And you shouldn't let your decisions interfere with that; you either accept or refuse.

Principle 3: Know what kind of investor your are

Benjamin writes that investors should be aware of their investment personalities. There are four main groups that he describes:

Active investors vs passive investors

Also called enterprising investors and defensive investors. 

According to Benjamin, it comes down to two choices. Either take serious time and make a commitment to become a good investor with (higher) expected returns. 

As opposed to getting a (lower) passive return on investment.  

Benjamin changed the academic notion of 'risk = return' to 'work = return'. 

Speculator vs investor

There is intelligent speculating as well as intelligent investing; the key is to be sure you understand which you are good at. - Benjamin Graham

Benjamin describes an investor as someone who looks at a stock as a part of a business. 

As opposed to speculators, who determine value by what someone is willing to pay for the stock. 

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Control your game

Having gone through the Panic of 1907 and reverting his negative experiences into something positive and productive, Benjamin Graham became the legendary Father of Technical Analysis.  His insights have changed investing  forever and inspired investors around the globe. 

According to Benjamin, you have to control your own game if you want to master the art of investing. 

Benjamin Graham died on September 21 1976 at the age of 82 years old.

His spirit lives on through his most famous disciple, Warren Buffet.

To finish, my personal favourite quote of Benjamin Graham:

To be an investor, you must be a believer in a better tomorrow.

- Benjamin Graham