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Benjamin Graham Quotes From the Father of Investing

Posted on March 28, 2011 by Thomas DeGrace

Famous Benjamin Graham quotes have been cited by famous investors such as Warren Buffett and others.  He has been an iconic figure for people who wish to make a fortune out of investing in companies. He introduced to Wall Street the concept of seeing stocks as a partnership in business rather than a standalone investment. His teachings and investment style have been followed by many keen and successful investors like Warren Buffet, Walter Schloss of WJS Partners, Ed Anderson of Tweedy Browne Partners and many others. Warren Buffet once remarked about him “It is difficult to think of possible candidates for even the runner-up position in the field of security analysis.”

I. Background

Benjamin Graham was born to an importer father in 1894 in London. They moved to America when Ben was one year old. There they opened importing business which failed. His father could not bear the failure and succumb to death soon after their move to America. In 1907 his mother lost all their family savings leading to an economic crisis. In short Benjamin Graham had a very Spartan childhood.

But this did not deter this bright student from completing his graduation from Columbia University. Since the very beginning, he was fascinated by investments and stock exchanges. That was the reason why he took up the job of a Chalker on Wall Street with Newburger, Henderson and Loeb in spite being offered a job of a teacher after his graduation at a young age of twenty. Soon he began doing financial research and he was made a partner in that firm. Eventually, he started his own firm under the name Graham-Newman Partnership and was earning over $500,000 a year at a young age of 25. This was a frugal amount as compared to the bolstering wealth that lay ahead of him, but to earn so much at such a young age was indeed commendable.

He was wiped out of all his assets during the Great depression of 1929.  In spite of this, the partnership firm survived by selling out all the personal assets of partners. Ben recollected his strength and was back on his feet. During these ups and downs, he had learned some valuable lessons. He shared these with the world through the books he wrote. Simultaneously he took up lecturing at Columbia University which was a partnership that continued for a very long time.

In 1934, He along with David Dodd came up with the book, Security Analysis. It is considered as the bible for those who are seriously interested in investing since the day it has been penned. He came up with his second book in 1949 The Intelligent Investor, which Warren Buffet the second richest man in the world considers as the best book ever written on investment. He got his first lesson of investment from this book.

The partnership between Graham and Newman continued till 1956.Their firm never gave losses to its investors and earned an annual return of 17%.He had seen business and investment markets travel from the depths of Depression to the heights of recovery. To his readers and keen learners, he has left an incomparable legacy in the form of his books and its theories. Graham retired from writing and lecturing at Columbia in 1956. Benjamin Graham died in 1976, with the reputation of being the “Father of investing(value)”.

II. Investment Style

Benjamin Graham coined the idea of Mr. Market. As per Graham, Mr. Market is a lunatic partner in your firm who offers to sell his share and buy your share in the business daily offering some price. That price depends on his mood that may fluctuate, so one day increasing the price and the other day decreasing it or not offering anything at all. This rise and fall in prices give the investor an opportunity to purchase and sell the shares. If you are a careful and a rational investor then your decisions shall not be based on the mood of Mr. Market. The lesson behind Mr. Market parable is obvious. The investor has to make his own decision based on the net worth of investment and not price fluctuation. He has summarized this very aptly “Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market.”

In his words “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” Before making any investment decision, He studied the Balance sheet of the company and its history of past 7 years. His fascination for numbers led him to come up with the “Theory of Value investing” in 1934. It is based on the assumption that two values are attached to a company. The first is the market price – the value of the company on the stock exchange. The second is a company’s business value. The margin of safety is the difference between the market value and the business value. The stocks should be sold when the market price gets close to the business value. This concept became very popular and is relevant even in today’s time.

He also likes companies that pay out dividends and are in good financial shape. Graham looked for companies that are trading below their historical P/E average and trading below 1.2 times book value. Benjamin always tried to buy stocks that were trading at a discount to their Net Current Asset Value. He suggested buying stocks at 2/3rd of Companies net value and selling them as they approach their net current assets. Clearly, it should suit the investor to buy shares when “Mr. Market” displays more insanity then otherwise. By religiously following Graham’s principles, it’s no surprise that Warren Buffett has become the second richest person in the world.

III. Benjamin Graham Quotes

1. “Wall Street people learn nothing and forget everything.”

2. “While enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street it almost invariably leads to disaster”

3. “To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.”

4. “Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble to give way to hope, fear and greed.”

5. “The individual investor should act consistently as an investor and not as a speculator. This means. That he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase.”

6. “The stock investor is neither right nor wrong because others agreed or disagreed with him; he is right because his facts and analysis are right.”

7. “The one principle that applies to nearly all these so-called “technical approaches” is that one should buy because a stock or the market has gone up and one should sell because it has declined. This is the exact opposite of sound business sense everywhere else, and it is most unlikely that it can lead to lasting success in Wall Street. In our own stock-market experience and observation, extending over 50 years, we have not known a single person who has consistently or lastingly made money by thus “following the market.” We do not hesitate to declare that this approach is as fallacious as it is popular.”