Benjamin Graham (1894- 1976)  is known as the “Father of Value Investing” as he pioneered the strategies of deep value investing. 

Graham wrote the book the intelligent investor of which his prodigy the Legendary Warren Buffett widely cites as the “best investing book ever written”.

Warren Buffett studied under Benjamin Graham at Columbia University and was his top student (no surprise).

Fun Fact: A series of unfortunate events led to Buffett’s encounter with Graham. As one of the richest people on this planet was TURNED DOWN by Harvard Business school in 1950.

Buffett stated: “I spent 10 minutes with the Harvard alumnus who was doing the interview, and he assessed my capabilities & turned me down,”

Benjamin Graham Investment Strategy:

Benjamin Graham’s deep value investment strategies although simple were game-changing for those who adopted them, concepts include:

• Recognising a Stock is a portion of a Business
• Margin of Safety (Valuing a company then buying below than fair value) 
• Mr Market (The concept that the Market is governed by a bipolar person which fluctuates from Fear to Greed) 
• Deep Value Investing. 

Deep Value investing generally involves looking for “Net Nets”  a stock selling for a price below its net current asset value (NCAV). 

Net Nets Calculation example: Value of current assets minus total liabilities, preferred shares, and off-balance sheet liabilities. 

The difficult part with deep value investing is being psychologically strong, as usually stocks were undervalued for a good reason. The idea was to spot times when the stock market was inefficient. 

Is Benjamin Graham still relevant today?

Yes! The principles outlined in books such as the Intelligent investor are still very relevant today for both business and investing. Although the strategy of deep value investing has become more difficult. 

This is due to a few factors, from the increasing availability of strategy information, to network connection of the stock market, algorithmic trading and more. 

Many Stock Market inefficiencies tend to be plugged extremely fast these days which makes it harder to find opportunities. 

Even Warren Buffett evolved Benjamin Graham’s traditional deep value investing style to pay more for “wonderful companies at fair prices” .

This was partly thanks to the influence of another legendary Investor Charlie Munger. 

Investment Returns:

Benjamin Graham averaged a compounded return of approximately 20% annually between 1936 to 1956. During the same period the general market returned just 12.2% annually on average.

In this post i’m going to outline the top 23 Quotes by Benjamin Graham for Wealth & Wisdom. Many of these quotes were derived from his famous books “The Intelligent Investor” and “Security Analysis”

23. “A Stock is a Portion of a Business”

A fundamental part of Benjamin Graham’s book is the principle that a “stock is a portion of a business”. Although we know this logically we can easily forget this when a stock crashes suddenly or we see crazy ticker symbols changing every minute. 

Warren Buffett likes to invest into stocks he would happily hold even if the stock market closed for a few years. As the stock market is just where you go to buy and sell the security.  

22. “Analyse the company before buying the stock”

Following on from the above quote, be sure to analyse the company before buying the stock. This may seem like common sense but it is not so common amongst retail investors or even Wall Street Hedge Funds. This is especially true when a stock is going up, then no questions seem to get asked. 

Legendary Investor Peter Lynch says when buying a stock you should at least spend as much time as you would when looking for a new refrigerator, you might compare prices, look at specs etc. However, don’t look at investing into stocks like grocery shopping. 

21. “Price is what you pay, value is what you get”

How to Value a Stock?

We live in a society where everybody knows the price of anything but the value of nothing! To invest well, valuation is the key.

Relative Valuation involves comparing simple metrics like PE Ratio (Price to earnings ratio), PS Ratio (Price to Sales Ratio) , EV/EBITDA  (Enterprise value/Earnings before interest, taxes, depreciation, amortization)

Intrinsic Value is the value of the companies future cash flows. To calculate this we use a DCF Model (Discounted Cash flow). We forecast the companies future cash flows then discount back to today. As a dollar in our hand today is worth more than a dollar in the future, as there is less risk, uncertainty and the opportunity cost. 

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20.” Invest with a Margin of Safety “

What is a Margin of Safety?

A “Margin of Safety” is an engineering term which often means adding extra to compensate for error.

For example when great bridges were built in Ancient Roman the architect & workers were made to stand under the bridge before it opened to show they had faith in the strength! This means they made sure they added a margin of safety and kept the quality high.

In investing the idea is the value a companies stock then buy below that “fair value”, Buffett is very disciplined and patient in this area and looks for at least a 20% margin of safety!

For example, if a stock was valued using our advanced valuation model  at $20 per share, then 20% lower would be $16 per share or less, this would be Buffett’s buy point. 

19. Market Panics create great prices

Volatility = Opportunity, panics in the stock market can create great stock prices for good companies. 

18. Mr Market fluctuates from Pessimism to Optimism

Mr Market is an analogy Benjamin Graham uses to explain how the stock market works. He tells the story of “Mr Market” a bipolar person who swings from euphoric to pessimistic regularly. Each day he knocks on your house and offers to buy it. 

Some days he is feeling fearful and only offers a low amount. However, other days he is excited and euphoric. On those days he offers to buy your real estate for way over the intrinsic value.

The trick is to do business with Mr Market when it is in your best interests. 

17. Own a stock without knowing it’s daily price

Invest only if you could own a stock without knowing it’s daily price. Warren Buffett often talks about investing into companies which he wouldn’t care if the stock market closed for 10 years! Another example if to imagine the market price of your home on a LED panel panel which shows a different price daily.

One day it will be very low, the other very high. When it is low you may feel sad and the urge to sell at the bottom to avoid losing everything!

However, the most rational thing to do is to value the real estate looking at rental yields, supply/demand etc to understand the true value. Then sell at the top of the market if you wish.

16. “Buy Cheap, Sell Dear”

Buy Low, Sell High, It really is that simple…but when your psychological biases & FOMO come into play it can be much more difficult to do this.

15. “Abnormally Good or Bad conditions don’t last forever”

When the stock market crashes it feels like the world is going to end, but “most of the time the world doesn’t end!” and if it does end you will have bigger problems to worry about. 

From world war 2 & the financial crisis stock market crash of 2008 to  the pandemic crash of 2020…crashes come and go. Then historically stocks have rebounded. 

Conversely, “tree’s don’t grow to the sky” when you see a stock which looks like it’s going to continue “to the moon” be aware that is usually the most dangerous time to invest. As valuations are often stretched. 

14. “Stocks become less risky as prices fall”

Counter intuitively stocks become MORE risky as prices rise and LESS risky as prices fall. Although we know this in our mind, our gut says different when stocks crash, especially if your life savings are invested! This is why it’s best to invest only excess savings you can afford to lose and have a separate rainy day fund. You will likely make better decisions like this.

13. “Get interested in a stock when the price falls”

Benjamin Graham recommends getting interested in a stock when the price falls (as it’s cheaper). Whereas, you will notice most people get interested when prices rise (stocks getting more expensive).
My personal rule is when the asset is on mainstream news (this could a stock or bitcoin) then it’s time to sell!.

12. “There is no such thing as a good stock, only good prices”

A question I get asked alot on my youtube channel is “what is a good stock?” and although I would love to say 10 stocks like many other channels, valuation always matters. 
I agree with Benjamin Graham, it is easy to identify a great company but then it is not a great investment until the price is right.

11. “Every Stock will be cheap or expensive at some point”

Every great company once went through terrible market crashes and pull backs. Even the great AMAZON stock was once down by 90%!

During the dot com bubble of the late 90’s , Amazon’s price soared to over 50 times its IPO value in December 1999! 

Shortly after the Nasdaq peaked on March 10 2000, then the bubble burst! Many internet companies which were burning cash suddenly went bankrupt such as Pet’s.com Geocities, Webvan and Boo.com.

Amazon’s stock crashed losing more than 90 percent of its value in two years.

According to Jeff Bezos although the stock crashed all the metrics in terms of “website visitors, sales etc” were all still growing exponentially.  However, many investors were scared out of the stock of this “online bookseller”. 

A few legendary investors such as Nick Sleep held this “long term compounder” through these up’s and down’s to achieve immense rewards. This is outlined in Nick Sleeps letters.

 

10. Stock Market is a Voting machine (Short term)

& Weighing Machine (Long term)

The stock market is a voting machine in the short term based upon (Fear/greed/popularity) but in the long term the stock market is a weighing machine based upon fundamentals. 

This is a key concept to remember in the stock market, the cream always rises to the top. 

9. “Be a Realist, sell to optimists, buy from pessimists”

Warren Buffett often states one of his great keys to success is his “rationality”. This is the ability to keep a clear head and see the signal from the noise of Mr Market. 

8. “Be an investor not a speculator”

As humans we are governed by many emotional biases from fear to greed, FOMO and more. I personally think the temptation to speculate is always in our mind so rather than fight it, just know the difference. Don’t speculate and think your investing, as that can be dangerous. But if you wish to speculate one idea is to have a very small “speculative portfolio” if you get the urge to bet on a few high upside but high risk early stage Biotech stocks. This is not financial advice.

7. “Investing is about managing risk, not avoiding it”

Risk is everywhere and especially in the stock Market. However, most people think “fear/panic” is risk…it is not. Risk is the likelihood of losing your money on the investment, which should be assessed rationally. Those who try to “avoid risk” entirely tend to not achieve major success. 

6. Process over results

If you buy stocks and they go down, then that doesn’t always mean you were wrong and vice versa. Investing is about your PROCESS  & time horizon not just the initial results.

If you invested into a stock randomly because your liked the name and it went up, then best not to consider yourself a genius as this is survivorship bias. But the opposite is also true if you utilised a great investing strategy but the stock went down then you don’t need to kick yourself. But of course of this consistently happens over a long period then you need to change the strategy. The Legendary Investor Peter Lynch often talks about this.

5. Day Trading is Financial Suicide

Benjamin Graham is the opposite of a day trader as he is a true long term investor. These days day trading does seem popular as people want the “fast money” and “quick gains”. However, many studies show 80% of day traders lose money. 

I believe this is due to a variety of reasons from transaction costs, tax implications and most importantly psychological biases. This is very difficult to control daily. Especially if you believe you have “hot hands” a term from basketball when you are shooting winning shots. 

4. “Life can only be understood backwards, but it must be lived forwards”

“Life can only be understood backwards, but it must be lived forwards” this is an insightful quote with many applications. From learning from your past mistakes to learning from historic stock market crashes & bubbles.

3. “The Memory of the financial community is short”

Despite many asset bubbles from the Dutch tulip bubble to the dot com bubble, housing bubble and to even the new age Crypto bubbles etc. The financial community has a very short memory and often tends to forget the lessons of past bubbles.

For example, during the late 90’s many companies put “.com” on the end of their name to increase their market value! Many people had the investing thesis of “the internet will change the world” which this technology did, but that doesn’t mean any price get be paid for the internet stocks. 

I see similar today with crypto currency “Crypto will change the world” and it may…but it doesn’t mean any price can be paid for the crypto tokens and coins. Value matters long term. (Opinion). 

2. “You are not wrong because people disagree with you…”

Everyone has an opinion, you are not right or wrong because people agree or disagree with you. You are right because your reasoning and process is right. To be successful in the stock market often requires a contrarian streak (betting against the consensus but also being right).

This requires an immense amount of inner courage and a strong internal compass to block out the noise. 

1. “Investing has nothing to do with IQ…be eager to learn”

Warren Buffett has often stated multiple times that he is not the smartest, he states:

“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ.”  

However, Buffett has shown extreme rationality & discipline at Berkshire Hathaway . Buffett will often wait many years to invest before buying when others are selling.

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Benjamin Graham Quote Gallery x 23 

Intelligent Investor