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Benjamin Graham: Biography, Education & Books

Instructor: Douglas Stockbridge

DJ Stockbridge is currently pursuing a Masters degree in Accounting.

In this lesson, you will learn about the early life, investing career, books, and legacy of Benjamin Graham - the 'founding father' of security analysis.

The Foundation for Security Analysis

Every house needs a strong foundation. Well, Benjamin Graham provided the foundation for security analysis, and as the years go on we continue to marvel at how strong that foundation really is. You can think of security analysis as researching and making investment decisions, more popularly in the stock market, but the same fundamentals he laid out over 80 years ago, are just as applicable for a wide variety of investments (i.e. real estate, bonds, etc.). Up until the 1930s, the stock market had no intellectual underpinning. Benjamin Graham provided an intellectual and emotional framework for investing that has stood the test of time.

In this lesson, we will discuss his early life, his work at Graham-Newman Corporation, his time at Columbia University and his works, which include The Intelligent Investor (1949) and Security Analysis (1934). We will then finish with a discussion of his legacy.

Benjamin Graham
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His Early Life

He was born Benjamin Grossbaum in 1894 in London but moved to New York as a one-year-old. Initially, his family was very well-off thanks to his father's business as a dealer of china dishes and figurines. However, his father died in 1903, and his mother lost all their money investing in stocks 'on margin.' She borrowed money and made risky bets that went sour during the 1907 Panic. This early 'baptism' by fire must have left a definite imprint on young Graham. This is evidenced by his later interest and aversion to risk which is most famously encapsulated in his idea that one should require a margin of safety, which means an investor should only purchase securities when the market price is below its fundamental value. Basically, when the market price is below your estimation of the fundamental value, the difference is the margin of safety. So, this difference makes an investment with minimal downside risk.

Graham was a gifted student. He was awarded a scholarship to attend Columbia University, finished 2nd in his class in 1914, and before his graduation, three departments - English, Philosophy, and Mathematics- asked him to join their faculty.

He turned down Columbia to start a career on Wall Street. He quickly rose through the ranks and eventually started his own investment partnership, Graham-Newman Corporation.

His Partnership

Graham-Newman Corp. survived losses of nearly 70% during the Stock Market Crash of 1929-1932. Out of the wreckage, the firm invested in stocks at bargain prices and generated one of the best long-term records on Wall Street. From 1936 until Graham retired in 1956, Graham-Newman Corp. gained at least 14.7% annually versus 12.2% for the stock market as a whole. A $10,000 investment made in Graham's partnership in 1936 would turn into more than $155,000 over those 20 years versus a little less than $100,000 for the market.

At Graham-Newman Corp., Graham built a reputation as a detail-oriented investor with a knack for finding companies who were selling for less than their net working capital (i.e. current assets - current liabilities). These companies could often be liquidated for a fine profit. If the market did not come to realize the value in the companies, Graham would prod management to realize that value by giving more cash to shareholders, or selling the company and returning the proceeds to the shareholders.

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