Every once in a while a person is born who changes the way the world works forever. Isaac Newton would discover gravity, Alexander Bell would create the telephone, and Thomas Edison would discover the beauty of electricity. These men were wonders of their time and one such man deserves to be put up there in that class. That man is Benjamin Graham.
Changing the World of Investing
Benjamin Graham was one of the main economists who would change the world of investing as we knew it forever. He was ahead of his time in the sense that he could see exactly what people needed and how their money should be growing at a much more regular pace. He has mentored people like Warren Buffet, William Ruane, Irving Kahn, and Walter Schloss, making him the ‘father’ of value investment.
Graham was born in as Benjamin Grossbaum in London, England on May 8, 1984. Along with his Jewish parents, he moved to New York City when he was just 1 year old. He didn’t live a wealthy life at all, which might have been the reason why he invested so much of his time in investing. It is an age-old story of soaring above one’s circumstances and Graham definitely got that right.
After the death of his father, he became a very good student and graduated as salutorian of his class at Columbia University. All this he achieved at the mere age of 20. After his illustrious tertiary education career, he received an invitation of employment to work as an English, mathematics, and philosophy instructor. This was a big deal for someone who was only 20 years old, but he turned it down. Instead he took a job that would change the course of his life forever: a job on Wall Street.
The Concept of Value Investing
Here he started the Graham-Newman partnership. This propelled him to success and already he started making new plans for the world of investment. His most famous was “The Northern Pipeline Affair” that involved the one and only John D. Rockefeller. In 1928, he decided to teach students the concept of value investing at Colombia University and this is the concept that would change the world for the better.
The Intelligent Investor
In 1934 he published his first book along with David Dodd, titled Security Analysis. This book, along with The Intelligent Investor is seen to be the most widely acclaimed books in the economic and investment sphere of studying. It invited the stock market participant to carefully distinguish between investing and speculating. In his first book he explains it carefully: that an investment is only something that promises a safe return. If it does not meet this requirement it is mere speculation. This statement made a huge impact on the way people went about doing business.
Graham was the first to urge investors not to be too concerned with the short term fluctuations in the stock market, but rather the long term effects of an investment. It has to carry weight in order for it to be successful. He also distinguished between passive and active investors, and urged participants to rather become active investors – to spend time analysing the stock markets and to make informed, calculated decisions. They should also make sure that they analyse the intrinsic value of a company as well as its financial state. This helped people to make expert decisions and to factor in different aspects that would lead to the growth of their money.
The Allegory of “Mr Market”
Graham explained that the only time that investment will be the most lucrative is when it is approached in a business-like manner. What he meant by this is that potential investors or established investors should not believe himself or herself to be right or wrong based on others’ agreements or disagreements. They should believe that they are right because his facts and his analysis are right. He often used the allegory of Mr Market, who would show up at investors’ houses selling shares. These prices would differ everyday – some being reasonable, others being ridiculous. The investor can choose to ignore these offers or accept it. Either way, Mr Market won’t mind. What he tried explaining here is that investors should do their homework properly and not partake in the follies on offer by the stock market. They should concentrate on their dividends rather than the stock market’s irrational behaviour.
He was a critical thinker and often saw through the financial reporting of businesses. He supported and fought for dividend payments from companies rather than these businesses keeping all their profits as retained earnings. He criticized the people who openly said that any investment is a good investment if it was bought at a reasonable price. His observations are still relevant today and his material is still taught in schools all over the world.
New Currency Basis
Apart from his extraordinary work in the investment world he also made brilliant contributions to economic theory. He was the one who devised a new basis for U.S and global currencies. His most famous student, Warren Buffet claimed that Graham was an excellent economist until his death. Every day he wished to do something creative, something generous and something foolish. By taking these chances he is one of the most noteworthy figures in investment banking.
There is little information known about Graham’s death, only the date which was September 21, 1976. The only thing that we do know is that he was dubbed the ‘Father of Security Analysis’ by millions at the time he passed away. Graham had a son whom he lost and he lived with his son’s elder girlfriend for a very long time. They never married but they returned to her homeland of France where he took his final breath.