The Worldly Wisdom Project #2

The book Benjamin Graham on Investing is an anthology of out of print articles that the father of value investing wrote for The Magazine of Wall Street during the years 1917-1927. These articles were in other words written early in his investment career and well before the publication of his two famous books, Security Analysis and The Intelligent Investor. I have enjoyed reading the book and especially in connection with the introduction and commentary to each article by David M. Darst. (CFA at Morgan Stanley Wealth Management and author).

Please comment if you have read the book and what you thought of it. Also, if you have found a worldly wisdom in the book that you think I should have included please comment on that as well. I’m very interested in what caught your eye while reading and why.

Five worldly wisdom’s from Benjamin Graham on Investing: Enduring lessons from the father of Value investing

According to Warren Buffett, Benjamin Graham (1894–1976) said that he wished every day to do “something foolish, something creative, and something generous.”(p.3 )

[S]tandard, popular issues are rarely exceptionally attractive; and, conversely, the best bargains are usually found far off the beaten track. For how long can an issue sell substantially below its minimum intrinsic value after everybody knows all about it?(p. 249)

The bargain-hunter keeps his nose to the grindstone of established facts. He analyzes recent balance-sheets and past income accounts. His idea of the future is obtained chiefly by averaging the past. He holds aloof from the hue and cry of the market; popularity means little to him for he generally buys the unpopular. He is a plodder—unimaginative and perhaps shortsighted; but he averages an excellent return on his capital and sleeps well at night.” (p. 340)

Bargain opportunities are rarely, if ever, undisputable and obvious. We cannot expect to find issues which are exceptionally attractive from every point of view, including their price. Most bargains exist both because and in spite of some unfavorable feature, which upon analysis is found to be (a) imaginary; or (b) over emphasized; or (c) important, but far outweighed by elements of strength. (p. 340)

All experienced investors know that earning power exerts a far more potent influence over stock prices than does property value. The worth of a business is measured not by what has been put into it, but by what can be taken out of it. So much is this true that many an unprofitable company sells in the market for less than the working capital alone—less than the liquid assets, which presumably could be readily turned into cash if the business were discontinued. Such companies, and they are by no means rare, are worth more dead than alive. Even cash assets, therefore, are not a dominant factor in market value, unless there are distinct possibilities of a special distribution therefrom. (p. 362)

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