Benjamin Graham: The Father of Value Investing

Benjamin Graham was born in 1894 and died in September 1976. He was an economist and investor known for being the first to propose “Value investing“. In 1928 he began teaching this investment philosophy at Columbia Business School, which inspired successful investors like Warren Buffett and Irving Kahn.

benjamin graham

Who was Benjamin Graham?

Benjamin Graham was born in London and moved with his family to New York shortly after his birth. After living in poverty for a few years and suffering the death of his father, he graduated from the Columbia University as one of the most outstanding students of his class.

After graduating from Columbia University with honours, he began working on Wall Street and later founded the Graham-Newman Partnership company.

Throughout his career as an investor, he developed the “value investing” investment philosophy along with David Dodd, which bases investments on companies with a low share price in relation to their fundamental valuation. Among some valuation ratios of this philosophy are the dividend yield, the price-to-earnings ratio, or the price-to-book value.

benjamin graham security analysis

One of the conditions of this type of value investment is to buy with what Graham called a “Margin of Safety.” That is, to buy shares whose price is sufficiently lower than the intrinsic or fundamental value calculated from the sum of potential future profits.

This analysis is approximate, it cannot be calculated exactly, and it is based on the present value criterion. In 2010, Benjamin Graham was inducted into the Investors Hall of Fame, in recognition of his lasting impact on the investment world.

👉 For more information about other great investors who have made and are making history, I leave you with our compilation article: The best investors in the world

The analysis of Benjamin Graham

Benjamin Graham proposed 8 filters for choosing companies to invest in for the long term.

  • Appropriate company size, companies with annual sales over 100 million dollars (currently it would be approximately 500 million adjusted for inflation).
  • Long-term debt should not exceed current assets.
  • Strong financial status: Current assets double the Current liabilities.
  • Company with positive profit in the last 10 years.
  • Must have distributed dividends for the last 20 years.
  • Earnings per share must have increased in the last 10 years.
  • The price should not exceed 15 times the average earnings (P/E ratio less than 15).
  • The current price should not be more than 1 or 0.5 times the book value.

👉 More information about this type of analysis: Fundamental analysis of a company.

Benjamin Graham's stock market books: Value investing or value investment

the intelligent investor by benjamin graham

Benjamin Graham was an influential economist and investor, his most famous books are “Security Analysis” and “The Intelligent Investor”.

Security Analysis Distinguishes the concept of investment and speculation such that

“An investment operation is one that, after thorough analysis, promises security of principal and a satisfactory return on investment. An operation that does not meet these requirements is speculative”.

Graham saw investment as participation in a business, being part of the company, and therefore, it is necessary to dedicate sufficient time and carry out a meticulous analysis to value companies and buy securities with sufficient safety margin, so that you do not have to worry about irregular price fluctuations.

The Intelligent Investor Warren Buffett has acknowledged that this book is possibly one of the best investment books ever written. In this book, Graham uses Mr. Market to reflect the short-term market behaviour, explaining the change of sentiments between optimism and depression. He talks about the safety margin as he expresses it in the previous book Security Analysis. The difference with the previous book is that this one is more general, while Security Analysis is more technical.

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FAQs about Benjamin Grahams

What is Benjamin Graham known for?

Benjamin Graham was a renowned value investor, economist, financial securities researcher, author, and mentor to successful investors like Warren Buffett. He is also known as the “father of investing,” Graham wrote several books, including The Intelligent Investor, which is widely considered the value investor's bible.

Is Benjamin Graham's Strategy still relevant today?

Yes, The Intelligent Investor book that explains Benjamin Graham investing strategy is still considered a classic and relevant book on investing. In fact, it is regarded as the investment Bible.
It was first published in 1949 and has been updated several times.The book offers timeless and valuable advice on investing, such as the importance of being disciplined and focusing on the long term. It also covers the basics of fundamental analysis, which is the process of evaluating a company's financial health and performance.

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