Benjamin Graham and his profound investment principles

Tan KW

Publish date: Thu, 21 Feb 2013, 04:45 PM

Graham had become well known during the 1920's. At a time when the rest of the world was approaching the investment arena as a giant game of roulette, he searched for stocks that were so inexpensive they were almost completely devoid of risk.

One of his best known calls was the Northern Pipe Line, an oil transportation company managed by the Rockefellers. The stock was trading at $65 a share, but after studying the balance sheet, Graham realized that the company had bond holdings worth $95 for every share. The value investor tried to convince management to sell the portfolio off, but they refused. Shortly thereafter, he waged a proxy war and secured a spot on the Board of Directors. The company sold its bonds off and paid a dividend in the amount of $70 per share.

When he was 40 years old, Graham published "Security Analysis", one of the greatest works ever penned on the stock market. At the time, it was risky; investing in equities had become a joke [the Dow Jones had fallen from 381.17 to 41.22 over the course of three to four short years following the crash of 1929]. It was around this time that Graham came up with the principle of "intrinsic" business value - a measure of a businesses' true worth that was completely and totally independent of the stock price. Using this 'intrinsic value', investors could decide what a company was worth paying for - and make investment decisions accordingly. His subsequent book, "The Intelligent Investor" [which Warren celebrates as "the greatest book on investing ever written"] introduced the world to Mr. Market - the greatest investment analogy in history.

Through his simple yet profound investment principles, Graham became an idyllic figure to the twenty-one year old Buffett.

http://beginnersinvest.about.com/library/titans/nwarrenbio.htm

Discussions

2 people like this. Showing 6 of 7 comments

kcchongnz

"It was around this time that Graham came up with the principle of "intrinsic" business value - a measure of a businesses' true worth that was completely and totally independent of the stock price. Using this 'intrinsic value', investors could decide what a company was worth paying for - and make investment decisions accordingly. His subsequent book, "The Intelligent Investor" [which Warren celebrates as "the greatest book on investing ever written"] introduced the world to Mr. Market - the greatest investment analogy in history."

Is Benjamin Graham and Warren Buffet so respected in the investment community? How come I don't see anybody in i3investor, none at all, using their principle of looking at stock as part of a business, find out what is its "intrinsic value", and invest in it only if there is a wide "margin of safety". How many "investors" in i3investor understand what is "intrinsic value" and "margin of safety"?

2013-02-21 17:41

necro

Bro kcchong not all ppl can interprate company report and beside that to buy stocks at margin of safety we must know first INTRISIC VALUE of the company...
Most of ppl like to trade not to invest..as they want return in shorter time...
For example bro kcchong what is Intrisic value of Digi in your opinion?

2013-02-21 18:41

Steve Jub

just wondering, in warran buffet's books, has he exposed all his secret is calculating intrinsic value or he only give portion of his secret? :)

2013-02-22 07:31

tptan45

If I am not mistaken, Warren Buffett has never published his methodology. The closest that anyone can get is the book written by his daughter in law. If you think that is too heavy ( like me) read the Guru Investors.

2013-02-22 08:34

Steve Jub

ya lo, else he cannot cari makan liao lol

2013-02-22 08:48

kcchongnz

Posted by kcchongnz > Feb 21, 2013 05:41 PM | Report Abuse X
"It was around this time that Graham came up with the principle of "intrinsic" business value - a measure of a businesses' true worth that was completely and totally independent of the stock price. Using this 'intrinsic value', investors could decide what a company was worth paying for - and make investment decisions accordingly. His subsequent book, "The Intelligent Investor" [which Warren celebrates as "the greatest book on investing ever written"] introduced the world to Mr. Market - the greatest investment analogy in history."

It was Benjamin Graham's principle of intrinsic value, not Warren Buffet's. Warren was a student and disciple of Ben. One can see Warren Buffet following the principles of intrinsic value and margin of safety in investing through his numerous letters to shareholders of Berkshire Hathaway.

2013-02-22 16:59

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