Benjamin Graham
Father of value investing, protecting capital through margin of safety
Graham built the value investing framework from the ruins of the Great Depression. His three core concepts — margin of safety, intrinsic value, and Mr. Market — transformed investing from an art into a repeatable science. His two books shaped an entire generation of investors, including his most famous student, Warren Buffett.
Methodologies
- Margin of Safety Purchase Method - Only buy when price is more than 30% below intrinsic value, using the discount to absorb valuation errors.
- Net-Net Stock Checklist - Screen for stocks trading below net current assets (current assets minus all liabilities).
Key decisions and timeline
- 1894 Born in London, family moved to New York in childhood - His impoverished background shaped his intense focus on capital preservation.
- 1914 Joined Newburger, Henderson & Loeb, beginning Wall Street career - Theoretical ability can only develop into an investment system through real market testing.
- 1929 The Great Crash: accounts lost approximately 70% - Any investment without a margin of safety is gambling; the greatest opportunities often lie in the greatest panics.
Beliefs and mental models
- Belief 1 - Buy at a price significantly below intrinsic value to provide a cushion against valuation errors and unforeseen risks. The larger the margin of safety, the lower the probability of permanent loss.
- Belief 2 - Mr. Market quotes prices every day, but you have no obligation to accept them. Market mood swings are opportunities, not guidance. The true investor exploits market irrationality rather than being directed by it.
- Belief 3 - An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculation.
- Model 1
- Model 2
- Model 3