Learning From Investing Greats

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Learning From Investing Greats
Deepika Asthana - 29 December 2019

Born as Benjamin Grossbaum on May 9, 1894 in London, Benjamin Graham arrived in New York with his family when he was just a year old. At the age of 20, he graduated as a Bachelor of Science from Columbia University and started off his career by writing stock and bond prices on a messenger board for USD 12 per week. In 1926, Graham partnered with Jerome Newman to form his own brokerage firm and at the age of 25 he was already earning an annual salary of USD 600,000. A year later, Graham was already well known on the Street and was among the first activist investors. Having held a small amount of stake in the Northern Pipeline Company, Graham wrote a letter to the Board of Directors pressurising them to distribute the excess cash it held in the form of railroad bonds as dividends to the shareholders. However, the company’s officials replied stating “Running a pipeline is a complex and specialised business, about which you can know very little, but which we have done for a lifetime.” However, Graham was resolute and galvanised other passive investors of Northern Pipeline Company to join his drive. In the end, he managed to have his way. By doing so, he transformed the then prevalent belief that investors had no understanding of how a business is run. In his letter to the company, he wrote, “The determination of whether or not capital is needed in the business should be made in the first instance by the owners of the capital rather than by those administering it.

His investing style

His focus on intrinsic value which is justified by the firms’ assets, earnings, dividends and financial strength, earned him the moniker “The father of value investing”.

Learnings from his investment style

  1. Never forget to account for the psychology of the investor

  2. Think long-term

  3. Comb through balance sheets

  4. Focus on fundamentals

  5. Diversify your investments

  6. Be willing to buy something no one else wants, cheaply

Benjamin Graham’s book on investing principles, “The Intelligent Investor” has served as a bible to the investing world. He wrote his first book on investing in 1934, and although he refined these thoughts over time, his investment philosophy has remained the same over the last 80 plus years. His observations and investment philosophy have endured stock market cycles and economic booms and busts.

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