When someone says “The Father of Value Investing” most value investors know immediately they are talking about Benjamin Graham (1894 – 1976). Graham developed the concept of fundamental security analysis, and introduced value investing strategies that are still guiding successful investors today.
The Early Years
After studying at Columbia University Benjamin Graham began working in 1914 and accumulated a large personal portfolio, only to lose most of it in the 1929 crash and great depression. This led him to publish, in 1934, the first of his iconic books “Security Analysis”, in which he documented his analysis and methods of security valuation.
Professor Benjamin Graham
Graham loved investing and mentoring others. As a Columbia University professor he taught the great Warren Buffett, who has proclaimed Graham’s book “The Intelligent Investor” (1949) the “best book on investing ever written”.
The Intelligent Investor
In the “Intelligent Investor” Graham used his teaching skills to outline his criteria for finding value. He used the famous parable of Mr. Market to illustrate how an intelligent investor should think and exploit market volatility.
Graham also developed the concept of margin of safety which requires purchasing assets below a conservative valuation of the business. In other words, price matters. The greater the margin of safety the less risky the investment, because there is more room for mistakes or unforeseen events. Eventually a quality investment will realize its true fundamental value and then you can sell the asset.
Graham developed a ground breaking approach to analyzing securities. He used the concept of intrinsic value in comparison to the stock price and establishing a margin of safety before he was willing to make an investment.
Along with his emphasis on valuation Graham favored quality investing. He sought out larger companies with solid balance sheets and favored those that paid a dividend. Graham was adamant that companies have consistent rising earnings, so he looked for companies with sustainable competitive advantages.
The Father of Value Investing
Benjamin Graham developed the concept of comparing valuations and adhering to strict value investing rules. He is the Father of Value Investing because his work lives on through value investors; including some of the greatest of all time.
Related Reading: Market Timing vs. Valuation Timing