Background
Benjamin Graham (1894-1976) is the father of value investing and Warren Buffett's mentor. His books 'Security Analysis' (1934) and 'The Intelligent Investor' (1949) created the intellectual framework for fundamental investing. His concept of 'margin of safety' — buying assets below their intrinsic value to provide a buffer against errors — is the single most important idea in investing.
Core Methodology
Graham's approach is mathematically-driven value investing: buy stocks trading significantly below their intrinsic value (calculated from asset values, earnings, and dividends) and sell when they reach fair value. His 'Mr. Market' allegory teaches investors to view market prices as offers from an emotional partner — sometimes generous, sometimes absurd — rather than as reflections of true value.
Key Trading Rules
- Margin of safety: buy at a significant discount to intrinsic value — at least 33% below your estimate
- Mr. Market: the market offers you prices daily — you choose whether to accept, not the other way around
- Net-net strategy: buy stocks trading below their net current asset value (current assets minus all liabilities)
- Defensive investor criteria: market cap above $2B, current ratio above 2, positive earnings for 10 straight years
- Enterprising investor criteria: additional research for deeper value with wider margin of safety
- Diversify across 20-30 positions — no single position should represent a large portion of the portfolio
Key Concepts
Books & Resources
The Intelligent Investor by Benjamin Graham (especially Chapters 8 and 20). Security Analysis by Graham & Dodd. Buffett's preface to The Intelligent Investor.