An economist and professional investor, Benjamin Graham (1894 -1976) is considered the father of Value Investing.

This is an investment approach he taught at Columbia Business School in the ‘20s. In the 1940 Benjamin Graham teamed up with David Dodd and publishing “Security Analysis” a fundamental reference to value investing of which the sixth edition is currently still in print.

Benjamin Graham’s Value Investing approach is an investment strategy that involves buying into securities where the shares are under priced in terms of some measure of intrinsic value.

For example, these securities could be stock in public companies that trade at discounts to book value or tangible book value, or have high dividend yields. They may also have low price-to-earning multiples or low price-to-book ratios.

Graham's most famous student is Warren Buffett, who ran successful investing partnerships before focusing on running Berkshire Hathaway 1969.

According to Warren Buffet, Benjamin Graham provided him with his investment framework for successful investing.

Buffett described Benjamin Graham as the second most influential person in his life, the first being his father.

Supporters of Benjamin Graham’s Value Investment theory, Buffett included, argue that the essence of Value Investing is to buy stocks at a lower price than their intrinsic value.

Graham called the discount of the market price to the intrinsic value "margin of safety".

This he advocated in his book “The Intelligent Investor”, although the term was first used in “Security Analysis”, the book written with Dodd.

The intrinsic value of a security is the discounted value of all future distributions. However, as one can only assume the future distributions and the appropriate discount rate.

Graham therefore calls for a cautious approach to valuation, and in terms of picking stocks, he recommended defensive investments in stocks trading below their tangible book value as a safeguard against adverse future developments often encountered in the stock market.

However, the concept of value (as well as "book value") has evolved significantly since the 1970s, and is more useful for industries where most assets are tangible. Intangible assets such as patents, software, brands, or goodwill are difficult to quantify, and may not survive the break-up of a company.

In “The Intelligent Investor”, Graham’s famous book, he states that Value Investing must be "businesslike" in approach.

Investing in shares in a company is akin to owning a share in a business enterprise, and thus investments must be approached in the same manner.

The guiding principles for Value Investing, according to Benjamin Graham are:

1. Know the business

The investor needs to become knowledgeable about the business or businesses carried on by the company in which they propose to invest – what it sells, how it operates, what the competitive environment is like, and what the threats, opportunities, strengths and weaknesses are.

2. Know who runs the business

Unless the investor believes, through sound research, that the company is managed efficiently, competently and honestly in the best interests of the shareholders, the investment should not be made.

3. Invest for profits

An investor would not normally buy a business that did not, on proper research, appear to have reasonable expectations of producing good profits over time. Share investors should take the same approach and buy, as Benjamin Graham said, "not on optimism, but on arithmetic".

4. Have confidence

Investors must research their investments and, if sound, proceed. "You are neither right nor wrong because the crowd disagrees with you. You are right [or wrong] because your data and reasoning are right [or wrong]."

Benjamin Graham Value Investing approach has proven to be a successful investment strategy.

Its how Warren Buffett and numerous other value investors have gotten rich!

 Books by Benjamin Graham

• The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel

• Security Analysis: Principles and Technique

• The Interpretation of Financial Statements

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P.S.   A company the market forgot about

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