Benjamin Graham — Part Nine: Investing Wisdom

It’s difficult to gather all of Benjamin Graham’s work together in one ten part series and try to pick out only the most important lessons. Nonetheless, in this part of the ten-part series, I’ve gathered together a selection of quotes from other famous investors on Graham. These quotes are not only a round-up of Graham’s wisdom but also a starting point for further research as there’s an important story behind each one and summarize nicely some of his most valuable lessons.

First from one of Graham’s students, Marshall Weinberg:

“One sentence changed my life…Ben Graham opened the course by saying: ‘If you want to make money in Wall Street you must have the proper psychological attitude. No one expresses it better than Spinoza the philosopher.’ When he said that, I nearly jumped out of my course. What? I suddenly look up, and he said, and I remember exactly what he said:’ Spinoza said you must look at things in the aspect of eternity.’ And that’s what suddenly hooked me on Ben Graham.”

Next is a quote from Irving Khan, who worked closely with Benjamin Graham over his career. He had the unique opportunity of working as Graham’s teaching assistant at Columbia University Business School and also contributed to Graham’s bible on value investing, Security Analysis, by providing some statistical help.

““What makes this result even more impressive was the high quality of the things they brought. While the names of the securities were often less than household names, their intrinsic high value made them far safer investments than most big listed companies.”

And from another former student Henry Schneider, who talks about Graham’s desire to unlock value through activism.

“He believed that you could become an activist in Wall Street and benefit. A lot of companies were not operating on all their cylinders like they should, and you could push ‘em into doing more which would in itself benefit society.”

From Graham’s most famous student, Warren Buffett:

“He bought a little of everything. So he was widely diversified, which was not the style that I would go for.”

Here’s Walter Schloss, another of Graham’s students, employees and talented value investor in his own right, on Graham’s strict investment process:

“…he [Ben Graham] had very strict rules. He wasn’t going to deviate. I had a fellow came to me from Adams & Peck…an old line railroad brokerage company…This fellow came to me, a nice guy, and he said “The Battelle Institute has done a study for the Haloid Company”…a small company that made photographic paper for, I think Eastman Kodak. Haloid had the rights to a new process and he wanted us to buy the stock. Haloid sold at between $13 and $17 a share during the depression and it was selling at $21 [1947-48]…I thought it was kind of interesting. You’re paying $4 for this possibility of a copying machine which could do this. Battelle though it was OK. I went into Graham and said, “you know, you were only paying a $4 premium for a company that has a possibility of a good gain,” and he said, “no Walter. It’s not our kind of stock.”

And Edwin Schloss, Walter Schloss’ son on Graham’s definition of risk:

“I think he talked about risk based on the fact that he wanted to buy something at less than $0.50 on the dollar. He just wanted to buy something that was undervalued.

He was very aware that he was going against the tide. He was buying companies that were trouble, he was willing to buy something that nobody else wanted.”

Lastly, four great quotes from Warren Buffett’s right-hand man, and Berkshire Hathaway’s vice chairman, Charlie Munger:

“Graham didn’t want to ever talk to management. And his reason was that, like the best sort of professor aiming his teaching at a mass audience, he was trying to invent a system that anybody could use.”

“Ben Graham had this concept of value to a private owner – what the whole enterprise would sell for if it were available…if you could take the stock price and multiply it by the number of shares and get something that was one third or less of sellout value, he would say that you’ve got a lot of edge going for you. Even with an elderly alcoholic running a stodgy business…You had a huge margin of safety…”

“The idea of a margin of safety, a Graham precept, will never be obsolete. The idea of making the market your servant will never be obsolete. The idea of being objective and dispassionate will never be obsolete.”

“To Graham, it was a blessing to be in business with a manic-depressive who gave you this series of options all the time. That was a very significant mental construct.”

The post Benjamin Graham — Part Nine: Investing Wisdom appeared first on ValueWalk.

Like this article? Sign up for our free newsletter to get articles delivered to your inbox Rupert may hold positions in one or more of the companies mentioned in this article. You can find a full list of Rupert's positions on his blog. This should not be interpreted as investment advice, or a recommendation to buy or sell securities. You should make your own decisions and seek independent professional advice before doing so. Past performance is not a guide to future performance. ValueWalk is always on the lookout for candidates for its Value Fund Interview Series. If you’d like to see a particular fund manager interviewed, or if you’re a value-orientated fund manager looking to put yourself forward for an interview, please do email Rupert at rhargreaves@valuewalk.com. Previous interviews in the Value Fund Interview Series can be found here.

Benjamin Graham — Part nine: Investing wisdom