Benjamin Graham

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Benjamin Graham, 1894-1976

Benjamin Graham was an influential economist and investor who is often called "the father of investing".

Graham was born in London in 1894 and immigrated to the USA with his family at 1 year of age where his father started an importing business. His original surname was Grossbaum but later changed to Graham. His father died not long after moving to America and his mother lost the families savings in an economic crisis.

Graham was a bright student and managed to get into Columbia University. After graduating in 1914 with a bachelor’s degree, he was offered a teaching position at the University, but declined it to work as a chalker on Wall Street with Newburger, Henderson and Loeb. He soon started doing research for the company which lead to him becoming a partner with a salary of over $500,000 a year at just 25 years of age.

In 1926, Graham and a broker called Jerome Newman formed an investment partnership, while he also started lecturing at night on finance at Columbia University, which he would continue to do until he retired in 1956.

In 1929 a Stock market crash almost sent Graham broke but the partnership survived with help from friends and the sale of most their personal assets, while Graham’s wife returned to work as a dance teacher. In 1934, Graham and another Columbian academic called David Dodd published the book "Security Analysis” which has continued to sell even today. In 1949, Graham also wrote the book “The Intelligent Investor”, often considered the Bible of investing. That book too has never been out of print.

The investment partnership between Graham and Newman continued up to 1956 and never again lost money for its investors, returning about 17 per cent. Graham also retired from writing and lecturing at Columbia in 1956. Benjamin Graham died in 1976, with the reputation of being the “Father of investing”.

Many investors hold Warren Buffett, arguably America's greatest investor, in the highest esteem. But, whom might you find on Warren's own pedestal? Probably a guy named Benjamin Graham, under whose tutelage Warren worked many moons ago. Although Graham's record doesn't beat Buffett's, he was no slouch.

Between 1929 and 1956, a time period spanning the Great Depression and several major wars, Graham's investments grew an average of about 17% per year. Ben Graham is known as the father of value investing. Value, or "defensive," investors quietly seek out bargains among underpriced companies, buy into them, and then patiently wait for their fair value to be realized.

Growth investors are more aggressive. They aim to buy businesses that are booming, often due to high demand for their products. While growth investors will buy a dollar hoping for it to become two dollars, value investors will try to buy a dollar for fifty cents. Both approaches have their merits, and Warren Buffett's current approach combines the two.

Graham was a pioneer in driving home to investors the importance of crunching numbers. After experiencing the devastation of the 1929 crash, he sought to develop resilient techniques that could be used by any investor. He popularized the examination of price-to-earnings (P/E) ratios, debt-to-equity ratios, dividend records, net current assets, book values, and earnings growth. (Thanks, Ben!) Graham knew what he was looking for and demanded high quality on every count.

Graham's focus was on objective numbers rather than more subjective things such as management, trends, brand names, and new products. The data he tapped was publicly available, via corporate financial statements and the Standard & Poor's Stock Guide (available for free from many brokerages).