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Benjamin Graham - Wikipedia, the free encyclopedia

BenjaminGraham
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BenjaminGraham(realnameGrossbaum)(/rm/
May8,1894September21,1976)wasaBritish
bornAmericanprofessionalinvestor.Grahamis
consideredthefatherofvalueinvesting,an
investmentapproachhebeganteachingatColumbia
BusinessSchoolin1928andsubsequentlyrefined
withDavidDoddthroughvariouseditionsoftheir
famousbookSecurityAnalysis.Grahamhadmany
disciplesinhislifetime,anumberofwhomwentonto
becomesuccessfulinvestorsthemselves.Graham's
mostwellknowndisciplesincludeWarrenBuffett,
WilliamJ.Ruane,IrvingKahnandWalterJ.Schloss,
amongothers.Buffett,whocreditsGrahamas
groundinghimwithasoundintellectualinvestment
framework,describedhimasthesecondmost
influentialpersoninhislifeafterhisownfather.In
fact,Grahamhadsuchanoverwhelminginfluenceon
hisstudentsthattwoofthem,BuffettandKahn,
namedtheirsonsHowardGrahamBuffettand
ThomasGrahamKahnafterhim.Grahamalsotaught
attheUCLAAndersonSchoolofManagement.

Contents
1Lifeandcareer
1.1Earlylife
1.2Career
1.3Legacy

BenjaminGraham(Grossbaum)

Born

May9,1894
London,England

Died

September21,1976(aged82)
AixenProvence,France

Nationality

UnitedStates

Institution

ColumbiaBusinessSchool,
GrahamNewmanPartnership,
UCLAAndersonSchoolof
Management

Field

Finance
Investment

Almamater

ColumbiaUniversity

Influenced

Contributions SecurityAnalysis(1934)
TheIntelligentInvestor(1949)

1.4Personallife
2Bibliography
2.1Books
2.2Papers
3Seealso
4References
5Externallinks

Lifeandcareer
Earlylife
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BenjaminGrahamwasbornBenjaminGrossbauminLondon,England,[1]toJewishparents.[2]He
movedtoNewYorkCitywithhisfamilywhenhewasoneyearold.Afterthedeathofhisfatherand
experiencingpoverty,hebecameagoodstudent,graduatingfromColumbiaUniversity,assalutatorian
ofhisclass,attheageof20.HereceivedaninvitationforemploymentasaninstructorinEnglish,
mathematics,andphilosophy,buttookajobonWallStreeteventuallystartingtheGrahamNewman
Partnership.Earlyinhisprofessionallife,Grahammadeanameforhimselfwith"TheNorthernPipeline
Affair",involvingJohnD.Rockefeller.[3]

Career
Hisbook,SecurityAnalysis,withDavidDodd,waspublishedin1934.[4][5][6]
[7][8]ItandTheIntelligentInvestorpublishedin1949(4threvision,withJason
Zweig,2003),arehistwomostwidelyacclaimedbooks.WarrenBuffett
describesTheIntelligentInvestoras"thebestbookaboutinvestingever
written."[9]Grahamexhortedthestockmarketparticipanttofirstdrawa
fundamentaldistinctionbetweeninvestmentandspeculation.InSecurity
Analysis,heproposedacleardefinitionofinvestmentthatwasdistinguished
fromwhathedeemedspeculation.Itread,"Aninvestmentoperationisone
which,uponthoroughanalysis,promisessafetyofprincipalandanadequate
return.Operationsnotmeetingtheserequirementsarespeculative."[10]
BenjaminGraham
andhismemoirs

Grahamwrotethattheownerofequitystocksshouldregardthemfirstand
foremostasconferringpartownershipofabusiness.Withthatperspectivein
mind,thestockownershouldnotbetooconcernedwitherraticfluctuationsin
stockprices,sinceintheshortterm,thestockmarketbehaveslikeavotingmachine,butinthelongterm
itactslikeaweighingmachine(i.e.itstruevaluewillinthelongrunbereflectedinitsstockprice).
Grahamdistinguishedbetweenthepassiveandtheactiveinvestor.Thepassiveinvestor,oftenreferredto
asadefensiveinvestor,investscautiously,looksforvaluestocks,andbuysforthelongterm.Theactive
investor,ontheotherhand,isonewhohasmoretime,interest,andpossiblymorespecializedknowledge
toseekoutexceptionalbuysinthemarket.[11]Grahamrecommendedthatinvestorsspendtimeand
efforttoanalyzethefinancialstateofcompanies.Whenacompanyisavailableonthemarketataprice
whichisatadiscounttoitsintrinsicvalue,a"marginofsafety"exists,whichmakesitsuitablefor
investment.
Grahamwrotethatinvestmentismostintelligentwhenitismostbusinesslike.Grahamsaidthatthe
stockinvestorisneitherrightnorwrongbecauseothersagreedordisagreedwithhimheisrightbecause
hisfactsandanalysisareright.[12]Graham'sfavoriteallegoryisthatofMr.Market,afellowwhoturns
upeverydayatthestockholder'sdoorofferingtobuyorsellhissharesatadifferentprice.Usually,the
pricequotedbyMr.Marketseemsplausible,butoccasionallyitisridiculous.Theinvestorisfreeto
eitheragreewithhisquotedpriceandtradewithhim,ortoignorehimcompletely.Mr.Marketdoesn't
mindthis,andwillbebackthefollowingdaytoquoteanotherprice.Thepointisthattheinvestorshould
notregardthewhimsofMr.Marketasdeterminingthevalueofthesharesthattheinvestorowns.He
shouldprofitfrommarketfollyratherthanparticipateinit.Theinvestorisbestoffconcentratingonthe
reallifeperformanceofhiscompaniesandreceivingdividends,ratherthanbeingtooconcernedwith
Mr.Market'softenirrationalbehavior.[13]
Grahamwascriticalofthecorporationsofhisdayforobfuscatedandirregularfinancialreportingthat
madeitdifficultforinvestorstodiscernthetruestateofthebusiness'sfinances.Hewasanadvocateof
dividendpaymentstoshareholdersratherthanbusinesseskeepingalloftheirprofitsasretained
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earnings.Healsocriticizedthosewhoadvisedthatsometypesofstockswereagoodbuyatanyprice,
becauseoftheprospectofsustainedstockpricegrowth,withoutagoodanalysisofthebusiness'sactual
financialcondition.Theseobservationsremainrelevanttoday.[14]

Legacy
Graham'smostfamousstudentisWarrenBuffett.AccordingtoBuffett,Grahamsaidthathewished
everydaytodosomethingfoolish,somethingcreative,andsomethinggenerous.[15]Buffettsaidthat
Grahamexcelledmostatthelast.[16]
SomeofGrahamsmostfamousdisciples,whohavedrawnontheworksofseveralColumbiaBusiness
Schoolalumni,manyofwhomweredirectdisciplesofBenjaminGrahamhimself,includefamousValue
InvestorssuchasWarrenBuffett,CharlieMunger,PhilipFisher,WalterSchloss,PeterLynch,John
Templeton,MohnishPabrai,WhitneyTilson,PremWatsa,LaurenTempleton,JeromeChazenandmany
more.
Alongsidehisrevolutionaryworkininvestmentfinance,Grahamalsomadesignificantcontributionsto
economictheory.Mostnotably,hedevisedanewbasisforbothU.S.andglobalcurrency.[17]

Personallife
AccordingtoTheSnowball,afterhisson'sdeath,Grahamhadanaffairwithhisdeceasedson'sgirlfriend
Malou(MarieLouiseAmingues)whowasseveralyearsoldertohisson,[18]andusedtotraveltoFrance
frequentlytovisither.HelaterseparatedfromhiswifeEsteyinNewYork,aftersherefusedhisofferof
livinginNewYorkforsixmonthsandFranceforsixmonths.MarieLouisewascontenttolivewith
Grahamwithoutmarriage.[19]

Bibliography
Books
SecurityAnalysis,editions1934,[20]1940,[21]1951[22]and1962[23]and1988[24]and2008[25]
ISBN9780071592536
TheIntelligentInvestor,editions1949,[26]reprintedin20051959,[27]1965,[28]1973[29]with
manyreprintssince
StorageandStability:AModernEvernormalGranary,NewYork:McGrawHill.1937ISBN0
070247749[30]
TheInterpretationofFinancialStatements
WorldCommoditiesandWorldCurrency,NewYork&London,McGrawHillBookCompany.
1944ISBN0070248060
BenjaminGraham,TheMemoirsoftheDeanofWallStreet(1996)ISBN9780070242692[31]

Papers
Graham,Benjamin(1917)."SomeCalculusSuggestionsbyaStudent".TheAmerican
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MathematicalMonthly(TheAmericanMathematicalMonthly,Vol.24,No.6)24(6):265271.
doi:10.2307/2973181(https://dx.doi.org/10.2307%2F2973181).JSTOR2973181
(https://www.jstor.org/stable/2973181).
,Benjamin(1943)."TheCritiqueofCommodityReserveCurrency:APointbyPoint
Reply".TheJournalofPoliticalEconomy51(1):6669.doi:10.1086/255988
(https://dx.doi.org/10.1086%2F255988).JSTOR1826594(https://www.jstor.org/stable/1826594).
Graham,Benjamin(1946)."TheUndistributedProfitsTaxandTheInvestor".TheYale
LawJournal(TheYaleLawJournal,Vol.46,No.1)46(1):118.doi:10.2307/791630
(https://dx.doi.org/10.2307%2F791630).JSTOR791630(https://www.jstor.org/stable/791630).
(1947)."MoneyasPureCommodity".AmericanEconomicReview37(2):304307.
JSTOR1821137(https://www.jstor.org/stable/1821137).
(1947)."NationalProductivity:ItsRelationshiptoUnemploymentinProsperity".
AmericanEconomicReview37(2):384396.JSTOR1821149
(https://www.jstor.org/stable/1821149).
Graham,Benjamin(1962)."SomeInvestmentAspectsofAccumulationThrough
Equities".TheJournalofFinance(TheJournalofFinance,Vol.17,No.2)17(2):203214.
doi:10.2307/2977419(https://dx.doi.org/10.2307%2F2977419).JSTOR2977419
(https://www.jstor.org/stable/2977419).
(1962)."TheCommodityReserveCurrencyProposalReconsidered".InYeager,Leland
B.(ed.).InSearchofMonetaryConstitution.Cambridge,MA:HarvardUniversityPress.pp.184
214.

Seealso
WarrenBuffett
CharlieMunger
PhilipFisher
JohnBurrWilliams
JohnNeff
WalterSchloss
PeterLynch
JohnTempleton
MohnishPabrai
WhitneyTilson
PremWatsa
WilliamJ.Bernstein
BenjaminGrahamformula
Valuationusingdiscountedcashflows
Gordonmodel
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References
1. ^TheMotleyFool.InvestmentGreats:BenGraham(http://www.fool.co.uk/news/investing/investing
strategy/2009/04/17/investmentgreatsbengraham.aspx).April17,2009.
2. ^However,hewroteinhisMemoirsthat,"ImustconfessherethatIfeellittleemotionalloyaltytothe
JewishpeoplefromwhomIsprung".Graham,BenjaminChatman,SeymourBenjamin.BenjaminGraham:
TheMemoirsoftheDeanofWallStreet,pp.6364.McGrawHill,1996.ISBN0070242690
3. ^Bloomberg,HowBenjaminGrahamRevolutionizedShareholderActivism
(http://www.bloomberg.com/news/20130517/howbenjamingrahamrevolutionizedshareholder
activism.html).May17th,2013.
4. ^NewYorkTimes,August16,1998GretchenMorgensonMarketWatchMARKETWATCHATimeTo
ValueWordsofWisdomSecurityAnalysisbyBenjaminGrahamandDavidDodd.
5. ^NewYorkTimes,January2,2000BusinessSectionHumblingLessonsFromPartiesPastByBURTONG.
MALKIELBENJAMINGRAHAM,coauthorof"SecurityAnalysis,"longagoputhisfingeronthemost
dangerouswordsinaninvestor'svocabulary:"Thistimeisdifferent."BurtonG.Malkielisaneconomics
professoratPrincetonUniversityandtheauthorof"ARandomWalkDownWallStreet"(W.W.Norton).
6. ^Amazon:EditorialReviewshttp://www.amazon.com/SecurityAnalysisBenjaminGraham/dp/1932378073
SecurityAnalysisisthebibleoffundamentalanalysis.Originallypublishedin1934,thetomesystematically
laysbarethescienceofsecurityanalysis.
7. ^About.comInvestingforBeginnershttp://beginnersinvest.about.com/cs/productreviews/gr/112702a.htm
BenjaminGraham'sSecurityAnalysishasbeencalledthe"Bible"ofinvesting.
8. ^AbeBooks.comhttp://www.abebooks.com/booksearch/title/securityanalysis/author/benjamin
graham/sortby/1/n/200000080/page1/Justasvalueinvestingnevergoesoutofstyle,neitherdoesthevalue
investor'sbible,'SecurityAnalysis,'byBenjaminGrahamandDavidL.Dodd,whichhaswithstoodthetestof
timeaswellorbetterthananyinvestmentbookeverpublished.
9. ^WarrenBuffett,"PrefacetotheFourthEdition",inBenjaminGraham,"TheIntelligentInvestor",4ed.,
2003.
10. ^BenjaminGraham,TheIntelligentInvestor,4thed.,2003,chapter1,page18.
11. ^BenjaminGraham,TheIntelligentInvestor,4thed.,2003,Chapter1.
12. ^TheIntelligentInvestorp.524(RevisedEd2006)
13. ^BenjaminGraham,"TheIntelligentInvestor",4ed.,2003,Chapter20.
14. ^TheEconomist,BenjaminGraham:Figuringitout(http://www.economist.com/node/21557499).July7th,
2012.
15. ^Buffett,WarrenE.:"BenjaminGraham",FinancialAnalystJournal,November/December1976.
16. ^FinancialAnalystsJournal,November/December1976.(Reprintedonpagexoftheprefacetorevised
FourthAdditionofTheIntelligentInvestor.)
17. ^Bloomberg,BenjaminGrahamsCleverIdeaforAvertingCurrencyWars
(http://www.bloomberg.com/news/20130228/benjamingrahamscleverideaforavertingcurrency
wars.html).February28th,2013.
18. ^Snowball,Page164
19. ^Snowball,Page391
20. ^GrahamandDodd.1934.SecurityAnalysis:PrinciplesandTechnique,1E.NewYorkandLondon:
McGrawHillBookCompany,Inc.
21. ^GrahamandDodd.1940.SecurityAnalysis:PrinciplesandTechnique,2E.NewYorkandLondon:
McGrawHillBookCompany,Inc.

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McGrawHillBookCompany,Inc.
22. ^Grahametal.1951.SecurityAnalysis:PrinciplesandTechnique,3E.NewYork:McGrawHillBook
Company,Inc.
23. ^Grahametal.1962.SecurityAnalysis:PrinciplesandTechnique,4E.NewYork:McGrawHillBook
Company,Inc.
24. ^GrahamandDodd.1988.SecurityAnalysis:PrinciplesandTechnique,5E.McGrawHillProfessional
25. ^GrahamandDodd.2008.SecurityAnalysis:PrinciplesandTechnique,6E.McGrawHillProfessional
26. ^BenjaminGraham.1949.TheIntelligentInvestor,1E.Harper&Brothers,NewYork,264pp
27. ^BenjaminGraham.1959.TheIntelligentInvestor,2Erevised.Harper&Brothers,NewYork,292pp
28. ^BenjaminGraham.1965.TheIntelligentInvestor,3Erevised.Harper's,NewYork,332pp
29. ^BenjaminGraham.1973.TheIntelligentInvestor,4Erevised.Harper&Row,Publishers,NewYork,340pp
30. ^BenjaminGraham.1937.ISBN0070247749StorageandStability:AModernEvernormalGranary.
NewYork:McGrawHill.1937
31. ^GrahamandEd.Chatman.1996.BenjaminGraham,thememoirsofthedeanofWallStreet.NewYork:
McGrawHill.

Externallinks
TheRediscoveredBenjaminGrahamselectedwritingsof
thewallstreetlegend

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