Benjamin Graham is considered as most successful investor of all time. Not only he had countless victories on the investment field but also was a father of so many successful investors like Warren Buffet, John Templeton, Irving Kahn and so on. The reason Benjamin Graham is regarded as historically greatest value investor can be found back in days in early 1900s when speculative trading environment was mainstream. Stock market was not kind of what we know now. During the days, investors were anxious of uncertainty since absence of internet provided insufficient information.
As Benjamin Graham was working in NHL, he had
his heydays working on security analyst. He was not momentum or day-trader seeking
for profit gains in short-term. His investment style is known as the “cigar-butt”
which is the “approach that picks up discarded business cigar butts laying on
the side of the road, selling them at deep discounts to book value with one
good puff left in them.” Warren Buffett was influenced the way Benjamin Graham
did in the past to find the firms that were barely out of attention from media.
By reading his book, I was inspired by several investment philosophy which lead present investors to direct themselves in the right path. I will list four principles Benjamin Graham emphasized.
Diversification
Portfolio divergence is the most important for not only for mom-and-pop investors but also the ones who regard themselves as gurus. Benjamin Graham has diversified his portfolio in many different areas. He mentioned finding companies which has significant ‘safety margin’ is the best way to make profit, however, it is not easy to discover such a stock. Some of firms which he regarded as underestimated compared to the present price were invested heavily and concentratively. However, for unknown situation, he invested in various companies to hedge the risk. He invested about 70 different companies to diversify his portfolio because if a company makes a loss, then others will cover it. (Warren Buffett was influenced by Benjamin Graham, though he did not select diversification investment method.)
Intrinsic Value (Cigar-Butts)
Sometimes inexperienced investors tend to
follow the trend of stock market. If the market is in upward cycle, then they don’t
try to miss out the chances. If opposite, then investors try to sell off their
assets. That is what Mr. Market entices innocent investors to join the party.
It can give them delusion as they are the successful investors when the market
is irrational floated. However, it can lay investors into fury when they think
they are deceived by Mr. Market. Sometimes the experts of analysts can allure them
to lead market melt-up. Nevertheless, Benjamin Graham puts weight on intrinsic
value. If an investor has a clear philosophy based on intrinsic value, there is
no need to worry about in attributing his or her mistakes on personified object
that does not exist at all.
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