Benjamin Graham: The Father of Value Investing
Benjamin Graham is known as an economist and professional investor who was first to promote the concept of “value investing.” Graham began promoting his investment ideas in 1928, when he began teaching at Columbia Business School. He refined his idea in Security Analysis (1934), a book he wrote with David Dodd. Serious investors consider the book (which has been published several times) the “bible.”
The Early Years
Benjamin was born May 8, 1894 in London to Dora and John Grossbaum, He had two older brothers, Victor and Leon. When Benjamin was just a year old, the family immigrated to New York. His parents came through Ellis Island in an era when it was common to Anglicize ethnic surnames by using the first two letters of the original family name to create a new name. Thus, Grossbaum became Graham.
Benjamin’s father was a successful importer of china dishes and figurines and they lived very well in an exclusive Fifth Avenue neighborhood. Sadly, in 1903 Graham’s father passed away and the family business tanked. When the family’s finances took a downturn; his mother turned their home into a boarding house and she borrowed cash to trade stocks on margin. Unfortunately, the Crash of 1907 wiped out the family’s savings.
The dramatic change in the family finances had a huge impact on Graham. He threw himself into his studies and won a scholarship to Columbia; in 1914 he graduated 2nd in his class. His academic achievements led to several invitations to join the Columbia faculty when he was just 20 years old.
Graham chose Wall Street over academia when he joined Newburger, Henderson and Loeb as a runner, earning $12/week. His job was to deliver securities and checks. He soon advanced to writing descriptions of bond issues and later he wrote the firm’s daily market letter. In 1919, at 25, he was a partner and earned an annual income of more than $500,000.
With Jerome Newman, he opened his own invest-ment firm in 1926, the Graham-Newman Partnership. Until 1956 he lectured Finance classes at Columbia.
The Crash of 1929 almost wiped him out; the partnership survived with help from friends and the sale of most of the partners’ assets. Things were so tight that Graham’s wife returned to work as a dance teacher. The firm recovered and Graham learned valuable lessons that he wrote about in books.
In 1949, Graham wrote The Intelligent Investor, which Warren Buffett claims to have read at least four times.
The Graham-Newman partnership continued until 1956 and never again lost its investors’ money; the
average annual return was about 17%. Warren Buffet studied under Graham at Columbia and later joined his firm.
Not a Dull Boy
Graham, who was a womanizer, spent thousands of dollars on dance lessons and was married 3 times. He never divorced his third wife, Estey, but carried on a long-time affair with his dead son’s girlfriend, Marie Louise Amingues, who gifted him an STD. Upon his death, Graham’s $3M estate went to Estey (cash), Marie (a house in La Jolla, CA,) and his children (book royalties).
Written by Naoma Welk