Benjamin Graham: What This Womanizer Can Teach You About Investing

Alexander Green
by Alexander Green, Chief Investment Strategist

The “Father of Security Analysis” wasn’t much of a husband or father. He divorced his first wife in 1937, when divorce was still socially unacceptable, leaving his four children stigmatized.

The next year, he married a young actress. But his interest soon waned and he soon dumped her to marry his secretary. In between, he had so many lovers and affairs that in a new biography The Einstein of Money, the author calls him a “swinger.” When he died in Provence at 87, it was in the arms of his long-time French mistress, whom he’d courted away from his son!

Needless to say, Benjamin Graham was not a family values guy. But he understood a lot about stock values. In fact, he pioneered the field of security analysis and made a fortune for himself in the stock market. Understanding even a little bit about his methods can make you a much better investor.

Graham arrived on Wall Street in 1914, a 20-year-old classicist fresh out of Columbia University. He began to make a name for himself by finding bargain stocks selling for far less than their intrinsic value. He soon put his money to work buying cheap stocks with a high margin of safety. In 1948, for instance, Graham invested a quarter of his firm’s capital in GEICO. It climbed 1,635% over the next eight years.

In 100 Minds That Made the Market, Ken Fisher writes that Graham “hated technical tools like charts and graphs and equally distrusted growth investors’ blind faith in a company’s management, upcoming products and present reputation – those just couldn’t be measured in cold, hard numbers. Instead, Graham relied on earnings and dividends and felt book value – the physical assets of a company – was the basis for making sound investment decisions.”

Graham insisted you should buy a single share of a stock the same way you would buy an entire company. Understand the business. Analyze the balance sheet. Do the math. Forget about the state of the economy or the hot trend of the moment. The only thing that really matters is the health and assets of the business you’re buying, not who’s in the White House or what’s happening at the Fed.

Graham laid out his core principles in Security Analysis, now widely recognized as the bible of value investing and a textbook still used in many college investment courses more than 70 years after it was published. He later distilled this work into The Intelligent Investor, a book for the lay investor that still ranks in Amazon’s top 300 – 62 years after it was first published. In fact, both books sell more copies each year now than when they were originally published, the true sign of an investment classic and a claim few books can make in any genre.

Today Graham is perhaps best known for his famous protégé, Warren Buffett. Buffett took Graham’s principles and used them to become the twentieth century’s best-known investor and one of the world’s wealthiest men.

Buffett still credits Graham for much of his success. “No one ever became poor by reading Graham,” says Buffett.

I can’t imagine a serious stock market investor who wouldn’t profit from studying Graham’s disciplined, common-sense approach. He is rightly viewed as the father of fundamental security analysis. And – given his social life – perhaps the father of much else, as well.

Good Investing,

Alex

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