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Most agree that Warren Buffet is the world's greatest investor. When Buffet took control of his holding company in 1964, Berkshire Hathaway, it had a market capitalization of $22 million. Today, only 35 years later, Berkshire is worth nearly $115 billion.
Graham was born in London in 1894, and moved to New York City with his parents as a baby. He attended Boy's High in Brooklyn, and went on to Columbia University. He graduated with his BS at age 20, and was elected to Phi Beta Kappa.
He started his financial career immediately after college as a messenger for Wall Street firm Newburger, Henderson, & Loeb. He worked his way up through the firm and was made full partner. By age 25 he was earning $600,000 per year--this was in 1919. That's literally millions in today's dollars.
In 1926 Graham started a partnership with Jerome Newman. The brokerage managed to survive the 1929 crash and the Great Depression, but Graham secretly lost all of his personal fortune. This same firm hired young Warren Buffet approximately thirty years later.
While most scholars and investment masterminds were determined to explain why the crash and depression occurred, Graham had a different idea. He had lost most everything, and knew that others had as well. He was destined to make his fortune back, and wanted to help others do so.
Graham and David Dodd wrote a comprehensive dissertation that is now one of the most famous investment books ever…Security Analysis. First published in 1934, Security Analysis was focused on helping investors build wealth in a conservative and rational manner.
Graham argued, through all 5 editions, that investing is a discipline. As a discipline, investing takes research, training, and experience. He advocated that investing lies somewhere between an art and a science, but that speculating was pure, irrational gambling.
We recommend that you check your local or university library for a copy of Security Analysis. It's a great book that's relatively easy to understand, and takes you through Graham's process step-by-step.
The book is very long, but we want to leave you with one of Graham's passages on high Price to Earnings Ratios. This passage can be applied to Internet and technology stocks as we watch them continue to fly through the roof. This book was written in 1934, but the fundamentals always remain. But more importantly, it shows that the Stock Market will always be here for us. Maybe we can learn a little from Graham, just as Buffet did.
"It seems almost impossible to make any degree of order out of this chaos. Nevertheless, one may discern some fairly well-defined and not irrational patterns in the price-earnings ratios, when they are viewed from the proper vantage."
Benjamin Graham, 1934
So who did Warren Buffet learn from as he began his business ventures and investing career? It was Benjamin Graham, who many consider the dean of financial analysis.
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