Revisiting Benjamin Graham

The founder of financial analysis, Benjamin Graham, published his book, ‘The Intelligent Investor,’ in May, 1949. His disciples include Warren Buffett and Jason Zweig as two people most recognizable to the average investor. In fact Buffett worked for Graham until Graham retired and Buffett set off on his own. Their working relationship was stormy as Graham and Buffett differed on the finer points of investing. Graham demanded an extremely wide moat before he purchased a stock while Buffett believed the firm was losing out to some potentially valuable purchases by being so stringent. Graham was a true  value investor and if he were around today he’d be happy-happy at what was happening in the markets.

In the depths of the 1974 market crash Graham gave a speech where he predicted that it would be many years  in which stock prices languished. He surprised his audience by saying this was a good thing.  He explained it allowed investors time to accumulate and take advantage of a long bear market.

It was from Mr. Graham that buy and hold became a mantra carried on by Warren Buffett who then expressed it as buy right and hold forever. Graham was a student of literature, mathematics and philosophy and viewed investing from a standpoint of eternity and not day- to -day. His philosophy can be read even today as The Intelligent Investor is still in print and can be purchased on Amazon or at any leading bookstore. This is over 60 years in print, a remarkable length of time for a book that does not entertain or titillate.

This value investor approach should appeal to some of my clients as many companies are trading at low price to earning multiples, pay solid dividends and have strong balance sheets. With huge discounts, dividends that exceed the 30 year bond yield we can buy quality cheap, hold and get paid for the wait. Graham was also a devotee of dividends and thought that public companies should pay their shareholders part of the profits.

The most important lesson Graham passes on is the one investment method in which many ‘modern’ traders and investors scoff. It is called dollar-cost averaging. This simple but basic tool that evens the playing field for the small investor takes the guesswork out of money management. This method of buying systematically, a set amount on a regular basis, takes advantage of long Bear markets. The problem, as many of us have learned, is the courage it takes to continue to buy into a market that gobbles up value. Those that have and did were and will be handsomely rewarded.

But Graham had reservations that all investor could stomach the fluctuations of the market and take advantage of them by consistent buying into a falling market. Graham said, ‘…the dollar-cost averaging investor must be a different sort of person from the rest of us…not subject to the alternations of exhilaration and deep gloom that have accompanied the gyrations of the stock market for generations past.’ 

We do not have to be a Benjamin Graham or Warren Buffett to build a portfolio that will provide income and comfort for us and our family. All we need is the courage  to believe in that success. In the depths of gloom that often is the hardest thing of all.

If you have questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.