Introducing this book
Content
“Benjamin Graham on Value Investing“, published in 1996, mainly talks about two things:
- “Benjamin Graham on Value Investing” mainly talks about Graham’s life, and this book is also equivalent to Graham’s biography. I have read another biography of Graham, which I personally found to be more interesting.
- “Value investing” advocated by Graham.
Author Janet Lowe
Author Janet Lowe is a deceased American writer who, as far as I know, published more than ten books. I have read four of these books. The main scope of these more than ten books is mainly in the two major areas of business celebrities and investment. She is particularly good at business and celebrities, and has published the world’s first biography of Charlie Munger.
Reasons to recommend this book
Author Janet Lowe has in-depth research on Graham, Buffett, and value investing, and his writing style is not boring.
Content of the book
- How Graham’s three important works came to be, and the important contents of each book.
- Graham-Newman Company.
- A discussion on the teacher-student relationship with Buffett.
- Graham’s teaching career.
- Graham’s relationship with Geico Insurance Company.
Graham’s thoughts
- Graham: “There are no easy and simple ways to get rich on Wall Street or anywhere else.”
- While working, Graham came into contact with the technological tools of IBM (then called CTR) and thought that this pre-IPO company had great potential, but unfortunately his boss rejected his application. A year later, IBM went public and has dominated the U.S. stock market ever since.
- Adam Smith: “If security analysis were a profession, there would be only one dean of that profession, and Graham would be the dean.”
Investment Career
Neuburg
After graduating from Columbia University, Graham joined Newburger, a famous Wall Street securities broker, through the introduction of the dean of Columbia University and worked there for nine years. During this period, he continued to demonstrate his extraordinary insights, work ability, and investment performance in securities, and was appreciated by many listed companies.
Because Graham almost overturned the way the industry analyzed public companies in the past.
Starting a business
After Graham left Neuberger, clients funded him to start his own investment company. The total capital was 250,000 US dollars, his annual salary was 10,000 US dollars, and the clients received a fixed dividend of 6% each year. If there was profit, Graham could get another 20% of it. This is exactly the same as the way Buffett Partnership later divided the profits.
Graham-Newman Company established
A few years later, the company was liquidated and dissolved due to disagreements among major shareholders over the new profit-sharing formula. Graham then set up his own new company and hired his classmate’s brother Newman to manage the company for him. Soon after, he discovered that Newman was extremely talented and had a good way of managing the company’s business, so Graham invited Newman to join him, and the two of them jointly owned the company. This is the origin of the company “Graham Newman”.
Newman was more precise and quick than Graham in terms of corporate liquidation and arbitrage. When Buffett later joined the company, he estimated that liquidation and arbitrage were almost the main source of profit for Graham-Newman, and that profits in this area had been at least more than 20% for thirty years, which was not easy.
In addition, Bernard Baruch, a big figure in American politics and investment circles, had been paying attention to Graham for a long time, and the two had collaborated on some investment cases. But when Bernard Baruch invited Graham to form a partnership, Graham refused.
Bernard. When Baruch and Graham met, they both agreed that the U.S. stock market had risen too much and a collapse was inevitable sooner or later. Bernard Baruch sold all his stocks in October before the Great Crash, but Graham later recalled that he did not take this warning seriously, so that the assets he managed fell by more than 50%, causing Graham to suffer during the Great Crash. Fortunately, some customers still supported him, and his and Newman’s persistence enabled the company to survive.
The company continued to operate until Graham’s retirement in 1956. Graham-Newman & Co. dissolved.
Graham-Newman’s simple goal
Graham-Newman wrote down the company’s simple operating objectives in its annual report:
- After careful analysis, we only invest in securities whose market value is below their true value, especially below their liquidation price.
- Engage in various arbitrage and hedging investments in the securities market.
Annual report said: “Based on the above strategy, we do not attach importance to predicting the securities market based on the past performance of individual stocks.
Graham-Newman investment returns
Generally speaking, Graham-Newman had a very poor return on investment during the one or two years after the Great Crash, and the company almost went bankrupt. After learning his lesson, Graham began to pay attention to safety margins, financing, various downside protections, and increasing the proportion of bonds and diversified investments. After that, even more than a decade later, when the U.S. stock market had still not recovered from the Great Crash, Graham-Newman was still well compensated. Provide satisfactory compensation to long-term customers.
Teaching
Graham continued to develop his talents and began teaching a course on security analysis at Columbia University in the evenings. The characteristic of his courses was that they all used existing market cases as teaching content, thus attracting many people from Wall Street to attend.
In addition to teaching at Columbia University, he was invited by the father of George Shultz, who later became Secretary of State, to teach at the New York Institute of Finance for employees of the New York Stock Exchange.
Publication
It is particularly worth mentioning that Todd was Graham’s student in the first class of the securities analysis course at Columbia University, and was responsible for recording all the contents of each class. This was also the origin of the two people’s collaboration in publishing the book “Security Analysis” at the end of 1934.
In 1936, Graham published “The Interpretation of Financial Statement“. This is a very thin book with very brief content, but it will be very helpful for investors who want to understand financial statements, especially beginners.
In 1949, Graham published “The Intelligent Investor“, which can be regarded as a simplified version of “Security Analysis“. It is more acceptable to the general public and is not as difficult to understand as “Security Analysis“. This is also the work that established Graham as the father of securities investment in the minds of ordinary people.
Graham later published two books related to economics, but they were not as well-known as the three listed above. The views in one of the books were even different from those of Keynes, and Keynes even wrote to express his different views on the book.
Data leakage
Graham and the company’s most senior employee, Walter Schloss, both revealed that because they inadvertently mentioned the company’s investment portfolio while having dinner or talking with friends, the prices of these stocks suddenly increased, making it impossible for the company to buy them as originally planned. From then on, Graham and company employees strictly restricted themselves from mentioning the names of any stocks invested by the company on any occasion. Buffett learned this lesson and suffered similar losses after establishing Buffett Partnership. Therefore, he no longer talked about stocks in company transactions.
Investment advice for women
In 1952, Graham wrote a column for Mademoiselle magazine titled “How Do You Get Started Investing?” In a modest but practical tone, he wrote: “Women are geniuses at using finances when it comes to buying everyday items. … If you’re going to buy stocks, do it the same way you buy groceries. Just don’t let your makeup-buying nature show up.”
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