Benjamin Graham was an influential investor from the first half of the 20th century. His research in securities laid the groundwork for the in-depth fundamental valuation used in stock analysis today by all market participants. His famous book, 澳洲幸运5官方开奖结果体彩网:The Intelligent Investor, has🍌 gained recognition as the foundational work in value inve𝓀sting.

Early Life and Education

Benjamin Graham was born in 1894 in London, UK. When he was still little, his family moved to America, where they lost their savings during the 澳洲幸运5官方开奖结果体彩网:Bank Panic of 1907. Graham attended Columbia University on a scholarship and accepted a job offer after graduation on 澳洲幸运5官方开奖结果体彩网:Wall Street with Newburger, Henderson, and Loeb.

By the age of 25, he was already earning about $500,000 annually. The 澳洲幸运5官方开奖结果体彩网:Stock Market Crash of 1929 lost Graham almost all his investments and taught him some valuable lessons about the investing world. His observations after the crash inspired him to write a research book with David Dodd, called Security Analysis. Irving Kahn, one of thℱe greatest American investors, also contributed to the research content of the boဣok.

Notable Accomplishments

Value Investing

Benjamin Graham is considered a founder of stock analysis and in particular of value investing. According to Graham and Dodd, value investing is deriving the intrinsic value of a common stock independent of its 澳洲幸运5官方开奖结果体彩网:market price, then comparing that to the stock's market value. The intrinsic can be found using a company’s finan👍cial fundamentals, inclu𒁏ding its:

• Assets
• Earnings
• 澳洲幸运5官方开奖结果体彩网:Dividend payouts

If the intrinsic value is more than the current price, the investor should buy and hold until a 澳洲幸运5官方开奖结果体彩网:mean reversion occurs. A mean reversion is the theory that over time, the market price and intrinsic price wi🐼ll converge towards each other until the stock price reflects its true value. By buying an undervalued stock, the investor pays less for it than it is worth, then sells when the price is trading at its intrinsic wor♉th.

This effect of price convergence is only bound to happen in an 澳洲幸运5官方开奖结果体彩网:efficient market. Graham was a strong proponent of efficient markets. If markets were not efficient, then value investing would be pointless: the fundamental principle of value investing lies in the ability of the markets to eventually correct to their intrinsic values. Common stocks are not going to remain inflated or bottomed out forever despite the 澳洲幸运5官方开奖结果体彩网:irrationality of investors in the market.

Benjamin Graham noted that due to the irrationality of investors, as well as factors l🤪ike the inability to predict the future and the fluctuations of the stock market, buying undervalued or out-of-favor stocks can provide a margin of safety—i.e. room for human error—for the investor.

Also, investors can achieve a margin of safety by purchasing stocks in companies with high 澳洲幸运5官方开奖结果体彩网:dividend yields and low 澳洲幸运5官方开奖结果体彩网:debt-to-equity ratios, and 澳洲幸运5官方开奖结果体彩网:diversifying their portfolios. In the event that a company goes bankrupt, the margin of safety would mitigate the losses that the investor would have. Graham normally bought stocks trading at two-thirds their 澳洲幸运5官方开奖结果体彩网:net-net value as his margin of safety cushion.

The origin🍌al Benjamin Graham Fo🌼rmula for finding the intrinsic value of a stock was:

$\begin{aligned}&V \ =\ EPS \ \times\ (8.5\ +\ 2g)\\&\textbf{where:}\\& V\ =\ \text{intrinsic value}\\&EPS\ =\ \text{trailing 12-mth } EPS\text{ of the company}\\&8.5\ =\ P/E\text{ ratio of a zero-growth stock}\\&g\ =\ \text{long-term growth rate of the company}\end{aligned}$​V = EPS × (8.5 + 2g)where:V = intrinsic valueEPS = trailing 12-mth EPS of the company8.5 = P/E ratio of a&nbs🍬p;zeಞro-growth stockg = long-term growth&nbs♌p;rate of the company​

In 1974, the formula was revised to include both a 澳洲幸运5官方开奖结果体彩网:risk-free rate of 4.4% which was the average yield of high grade 澳洲幸运5官方开奖结果体彩网:corporate bonds in 1962 and the 澳洲幸运5官方开奖结果体彩网:current yield on 澳洲幸运5官方开奖结果体彩网:AAA corporate bonds represented by the letter Y:

$V=\frac{EPS\ \times\ (8.5\ +\ 2g)\ \times\ 4.4}{Y}$V=YEPS × (8.5 + 2g) × 4.4​

Published Works

Security Analysis was first published in 1934 at the start of the 澳洲幸运5官方开奖结果体彩网:Great Depression, while Graham was a lecturer at Columbia Business School. The book laid out the fundamental groundwork of 澳洲幸运5官方开奖结果体彩网:value investing, which involves buying 澳洲幸运5官方开奖结果体彩网:undervalued stocks with the potential to grow over time. At a time when the stock market was known to be a 澳洲幸运5官方开奖结果体彩网:speculative vehicle, the notion of 澳洲幸运5官方开奖结果体彩网:intrinsic value and 澳洲幸运5官方开奖结果体彩网:margin of safety, which were first introduced in Security Analysis, paved the way for a 澳洲幸运5官方开奖结果体彩网:fundamental analysis of stocks void of speculation..

In 1949, Graham wrote the acclaimed book The Intelligent Investor: The Definitive Book on Value Investing. The Intelligent Investor is widely considered the bible of value investing and features a character known as 澳洲幸运5官方开奖结果体彩网:Mr. Market, Graham’s metaphor for the mech꧂anics of market prices.

Mr. Market is an investor’s imaginary business partner who daily tries to either sell his shares to the investor or buy the shares from the investor. Mr. Market is often irrational and shows up at the investor’s door with different prices on different days depending on how optimistic or pessimistic his mood🌼 is. Of course, the investor is not obligated to accept any buy or sell offers.

Graham points out that instead of relying on daily 澳洲幸运5官方开奖结果体彩网:market sentiments, which are run by investo🌠rs' emotions of greed and fear, investors should analyze a stock’s worth based on the company’s reports of its operations and financial position. This analysis should strengthen the judgment of the investor when they are made an offer by Mr. Ma♛rket.

According to Graham, the intelligent investor sells to optimists and buys from pessimists. The investor should look out for opportunities to buy low and sell high due to price-value discrepancies that arise from economic depressions, market crashes, one-time events, temporary negative publicity, and human errors. If no such opportunity is present, the investor should ignore the 澳洲幸运5官方开奖结果体彩网:market noise.

While echoing the fundamentals introduced in Security Analysis, The Intelligent Investor also pr๊ovides key lessons to ♎readers and investors by advising investors to:

• Not follow the 澳洲幸运5官方开奖结果体彩网:herd or crowd
• Hold a portfolio of 50% stocks and 50% bonds or cash
• Be wary of 澳洲幸运5官方开奖结果体彩网:day trading
• Take advantage of market fluctuations
• Not buy a stock simply because it is popular
• Understand that 澳洲幸运5官方开奖结果体彩网:market volatility is a given and can be used to an investor’s advantage
• Look out for 澳洲幸运5官方开奖结果体彩网:creative accounting techniques that companies use to make their EPS value more attractive

Legacy

One notable disciple of Benjamin Graham is 澳洲幸运5官方开奖结果体彩网:Warren Buffett, who was one of his students at Columbia University. After graduation, Buffett worked for Graham’s company, Graham-Newman Corporation, until Graham retired. Buffett, under the mentorship of Graham and value investing principles, went on to become one of the most successful investors of all time and as of January 2024, the eighth wealthiest man in the world valued at almost $120.6 billion. Other notable investors🍬 who studied and worked under the tutelage of Graham include Irving Kahn, Christopher Browne, and Walter Schloss.

Although Benjamin Graham died in 1976, his work lives on and is still widely used by ꧒value🔯 investors and financial analysts running fundamentals on a company’s prospect for value and growth.

The Bottom Line

Benjamin Graham, dubbed the "father of value investing," became famous for his investing style, literary contributions on investing, and research. Graham lectured at his alma mater, Columbia University, and eventually became a professor of finance there. His legendary book, The Intelligent Investor, introduced value investing to the financial and investing world. He also defined investment principles adopted by some of the world's most infamous investors.