Benjamin Graham was an American investor, economist, and scholar who became renowned as the “Father of Value Investing.” He was born in the United Kingdom around the close of the nineteenth century and came to the United States with his parents when he was one year old, losing his father when he was nine. Following that, he grew up in abject poverty, which inspired him to work hard and provide for his family. He graduated from Columbia University with a bachelor’s degree in history and then went to work as a Chalker on Wall Street. He ascended the corporate ladder quickly and earned enough to open his own partnership firm at the age of 32 and begin teaching at Columbia University at the age of 34. Despite losing a significant portion of his assets in the 1929 stock market crash, he maintained his zeal and, after learning from his mistakes, authored two well-praised financial manuals. His management economics insights paved the way for the development of value investing in a variety of investment vehicles, including mutual funds, hedge funds, and diversified holding corporations. He had a large number of followers, the most renowned of them was Warren Buffet.
Childhood and Adolescence
Benjamin Graham was born to a Jewish family in London, England, on May 9, 1894, as Benjamin Grossbaum. When he was a year old, his parents, Isaac M. and Dorothy Grossbaum, immigrated to the United States, eventually settling in New York, where Isaac launched an export-import business.
Isaac Grossbaum died in 1903, leaving his wife to care for Benjamin, nine, and his two younger siblings, Leon and Victor. The Bank Panic of 1907 stripped her of her savings, forcing the family to move in with Dorothy’s brother, Maurice Gerad, while she was still able to cope.
Benjamin was an excellent student in school and received a scholarship to Columbia University, where he graduated salutatorian of his class in 1914. He was only 20 years old at the time, and he was ready to make his fortune by taking risky and unconventional actions.
The University offered him teaching posts in three distinct colleges just weeks before his graduation: Greek and Latin philosophy, English, and mathematics. Despite the fact that the position would have provided him with financial security, he turned it down and went to work on Wall Street.
Early on career
Benjamin Grossbaum started his work as a messenger at Newburger, Henderson, and Loeb, a Wall Street brokerage business, in 1914. It was considered a groundbreaking step at the time because university graduates did not regard stockbroking as a career option at the time.
His primary responsibility was to write scores on the blackboard at first, but as he gained the trust of the proprietors by his innate brilliance, he was granted more responsibilities. He was soon conducting financial studies for the company.
In 1920, he became a partner of Newburger, Henderson, and Loeb after quickly rising through the ranks. He quickly rose to a salary of $50,000 a year. He changed his surname from Grossbaum to Benjamin Graham at some point to fit in with the Wall Street vibe.
Creating a Partnership
Benjamin Graham and another Wall Street broker, Jerome Newman, founded Graham Newman Co in 1926. It was truly revolutionary cooperation, as they used some creative techniques that not only protected their clients’ capital but also allowed them to generate a 670 percent return over a ten-year period.
They would simultaneously bet on the price of one stock rising while betting on the price of another one falling. They were able to fully utilize available resources without the need for cash reserves, surpassing leading mutual funds by 40%.
Affair with the Northern Pipeline
In 1926, Graham made another remarkable finding that aided him in establishing his stock market position. Standard Oil, owned by the Rockefellers, was split up into 34 separate companies in 1911. Wall Street, on the other hand, gave them little attention because it didn’t know anything about their financial situation.
All pipeline businesses were required to file financial statements with the Interstate Commerce Commission in 1926, which they dutifully did. While reading these papers, Benjamin Graham was captivated by one particular Northern Pipeline Company. He promptly boarded a train to Washington to learn more about the country’s financial situation.
To his surprise, he discovered that while Northern Pipeline’s stock was selling at $65 per share, the business possessed railroad bonds valued at $95. He also realized that because of the nature of the company’s holdings, which included other liquid assets, it could disperse its assets without impacting the operators.
Graham began buying stock in the company in 1926, eventually owning 5% of it. He then went to see Northern Pipeline’s senior executive, asking that the excess asset be distributed to the shareholders, as they were the legal owners. They, on the other hand, were adamantly opposed to the proposal.
Graham presented his proposition to his stockholders during a shareholders’ meeting in 1927. He submitted his suggestion in the form of a motion, as needed, but none of the current shareholders consented to second it, therefore it was discarded.
Unfazed, Benjamin Graham decided to use proxies to take his fight to the next level. He hired a law firm and began soliciting proxies. He also paid a visit to the Rockefeller Foundation but received little encouragement. He had, however, secured proxies for around 37.50 percent of the company’s shares by January 1928.
The 1928 shareholder’s meeting marked a watershed moment in Graham’s career. He not only had 37.50 percent proxies with him at this meeting, but the Rockefeller Foundation, which had given its proxies to the firm management, had also conveyed a mandate that the corporation disperse as much cash as it could spare.
Graham’s election to Northern Pipeline’s board of directors had to be accepted. They gave $70 per share of extra liquid assets to stockholders shortly after. Rockefeller was so impressed that he asked him to a meeting and later reached out to other affiliates with excess liquid wealth, asking them to distribute it to the proper owners.
Many other former associates began dumping their excess liquid wealth at Rockefeller’s encouragement, spreading it among the stockholders. The ‘Northern Pipeline Affair,’ also known as the ‘Ripple Effect,’ cemented Benjamin Graham’s reputation as a great analyst and shareholder activist.
Graham’s victory in the Northern Pipeline Affair after the stock market crash provided another door for him. He began teaching at Columbia University’s Columbia Business School in 1928 and remained there until 1955.
Graham Newman Partnership lost a large percentage of its capital in 1929, when the stock market crashed, ushering in the Great Depression, but they managed to stay afloat. They eventually regained their investments, never to lose them again, and enjoyed an average yearly return of 17% until 1956.
The stock market fall prompted him to write his first book, ‘Security Analysis,’ which was published in 1934. It was the first book to comprehensively deal with the study of investments, and it was co-written with David Dodd.
Graham Newman Company purchased Government Employees Insurance Company in 1948. It was a private company, despite the word ‘Government’ in its name. Because an investment fund could not own an insurance company, it was converted into a public corporation and shares were distributed to investors.
His key essay, ‘The Intelligent Investor,’ was released in 1949. Simultaneously, he continued to play a key role in the stock market, purchasing shares that were trading for substantially less than the firms’ liquidation value, allowing him to profit from equities while avoiding downside risk.
Disciples of Notoriety
Benjamin Graham’s stock market performance has caught the attention of many young would-be investors throughout the years. Warren Edward Buffet was one of them. In 1949, the nineteen-year-old would-be investor and business magnate enrolled at Columbia University solely to study with him.
Buffet approached Graham for a job in his company after graduating in 1951, stating that he wanted to work in the stock market. He admired Graham so much that he was willing to work without pay for him.
Although first Graham discouraged him he later succumbed. Buffet began working for the Graham Newman Corporation in 1954, earning a $12,000 annual salary and remained there until Graham’s retirement in 1956.
Graham, he subsequently remembered, was a stern yet accommodating supervisor.
Graham also took classes at the New York Stock Exchange Institute, where one of his pupils was an American businessman and fund manager Walter J. Schloss. He eventually started to work for Graham as well, learning the ropes from him.
Graham had a huge influence on Irving Kahn, his teaching assistant at Columbia University’s Columbia Business School. William J. Ruane, Seth Klarman, Bill Ackman, and Charles H. Brandes were a few more notable investors who regarded themselves to be Graham’s pupils and used his value investing strategies.
Later the Years
Benjamin Graham left the stock market in 1956 after dissolving his business with Newman. He then traveled to California, where he taught at the University of California, Los Angeles, as well as the New Mexico Anderson School of Management. At the same time, he maintained a residence in New York and visited frequently to France.
His passion for the stock market did not wane even after he disbanded the partnership. He spent much of his retirement inventing simple algorithms to assist typical people in making stock investments. He also spent a lot of time writing about monetary policies.
He grew disillusioned with ordinary stockholders over time as they failed to assert their rights as the genuine owners of the corporation. Takeovers, on the other hand, gave him hope since they forced corporations to work correctly.
In his later years, he began teaching Sunday lessons to children who did not attend a church or temple. He spoke to them about the history of religion and the topic as a whole. These classes were a hit with the kids.
Major Projects of Benjamin Graham
‘Security Analysis’ and ‘The Intelligent Investor’ are two of Benjamin Graham’s most well-known works. While he clearly distinguished between investment and speculation in ‘Security Analysis,’ he primarily engaged in value investing in ‘The Intelligent Investor.’
He is also known for inventing the so-called “Benjamin Graham formula.” The technique, which was published in ‘The Intelligent Investor,’ allows investors to rapidly decide whether their equities are priced fairly. ‘Mr. Market’ and ‘margin of safety’ were two of his other well-known themes.
Personal History and Legacy
Benjamin Graham was married three times, although little is known about his wives or children. His first wife, whose name has been forgotten, was a dancing teacher. After the 1929 stock market crash, she had to return to teaching despite having given up her career to care for her family.
Graham divorced her first husband in 1937, and the following year married a young actress. However, this union was likewise short-lived. He divorced her soon after to marry Estelle Messing Graham, his secretary. “A friendly, giving, and nonjudgmental person,” Estelle, also known as Estie, had been described.
He had one son with Estelle, Benjamin Graham Jr. He had at least two additional sons from his previous two marriages: Newton, who died of meningitis of the spine when he was eight years old, and Newton II, who served in the United States Army.
Newton II, his second son, committed suicide in 1954 while stationed in France. Graham rushed to France after learning of the news to arrange for his final rites. There, he met Marie Louise Amigues, who, although being twenty years Newton’s senior, was dating him.
Graham and Amigues eventually became romantically involved, and Graham began to spend more time with her. He told Estelle in 1965 that he would spend six months with her in California and the other six months with Amigues in France. He departed home when Estelle declined the offer.
Graham died in Aix-en-Provence, France, on September 21, 1976, at the age of 82.
Serious investors all over the world still apply his principles on investor psychology, low debt, buy-and-hold investment, fundamental analysis, concentrated diversification, buying within the margin of safety, activist investing, and contrarian mindsets.
Estimated Net Worth
The estimated net worth of Benjamin Graham is unknown.
Trivia
As a nod to his teacher, Benjamin Graham, legendary investor Warren Buffet named his eldest son Howard Graham Buffet.