Benjamin Graham - Overview
Benjamin Graham was born in 1894 to a British businessman family that had completely failed in business operations and financial investment. The poor child lost his father when he was 9 years old, which directly led to the bankruptcy of the Graham family's ceramics business; when he was 13 years old, his mother not only lost all her savings in U.S. Steel stocks, And he owed a huge deposit. However, all this suffering was not enough to throw Benjamin Graham into the abyss of lifelong poverty. Relying on the money he earned from working, he struggled to complete his undergraduate degree from Columbia University - in any era, this meant a well-paid job and an extremely bright career. The family's poverty completely changed Graham's life. Virtually all of Graham's friends believed that he was suited to a career in academia because he was an extremely eager learner, good at writing, and extremely proficient in mathematics. At the beginning of the 20th century, most financiers did not know much about mathematics and could not even calculate some simple financial ratios. Financiers of that era were keen to talk about vague "news" and "expectations" rather than clear data and facts. Since he was young, Graham has hated this kind of vague investment philosophy, especially the blindly optimistic investment philosophy that does not go through brain analysis and only relies on passionate impulse, because his mother became impoverished precisely because of blind optimism. . Every college graduate majoring in economics will think of career success, instant wealth and a life in the spotlight. However, in Graham's mind, the most important thing is probably not to become rich, but to avoid the repeated mistakes of his family in the past. Suffering - failed investments and bankruptcies.
Therefore, Graham has been a very cautious defensive investor throughout his life. The "value investment" concept he created is not so much to strive for investment returns, but to avoid it as much as possible. Investment Risks. He likes numbers, detailed financial statements, and laws that have been tested by history; in short, he likes everything that is realistic and reliable, and he also likes to reveal the facts hidden behind the appearance. This personality seems more suited to being a finance professor than a stock analyst. In fact, Graham himself had always longed to teach at a university, but because his family was really short of money, he could only choose to find a job in the noisy and impetuous Wall Street. As a result, this young man who loved mathematics revolutionized Wall Street, and a few years later he was called the "Godfather of Wall Street" and "the greatest investor" in awe by Wall Street's new generation of fund managers.
Benjamin Graham - Characters and Deeds
In 1914, when Graham started working in the securities industry, there was actually only one established theory in the industry, namely the Dow Theory. . This theory believes that the fluctuations of the stock market are regular and consist of "major trends", "minor trends" and "micro trends". Each "major trend" is a component of a larger trend, and it changes constantly. . The Dow Theory is a thorough technical analysis theory that does not take into account the financial status and development prospects of a specific company; moreover, the Dow Theory is not specifically designed for stocks. It was originally used to predict the economic situation. It is also widely used in market analysis of bonds, commodities, etc. Stocks are considered a low-grade bond and are not an option for conservative investors. Although all listed companies have begun to publish annual reports, few investors actually make investment decisions based on the data in the annual reports.
Benjamin Graham’s annual financial reports from the 1910s to the 1920s were fundamentally different from today’s financial reports: the format was very irregular, there was too much room for ambiguity, and companies often sought to hide profits to evade taxes; More importantly, the financial reports at the time could not reflect the complex holding relationships and could not accurately value the company's investments. At the beginning of his career, Graham focused almost all his energy on the analysis of financial reports, constantly discovering undervalued assets or concealed profits. These companies are good investment targets. After more than a decade on Wall Street, Graham had become famous and established his own firm, Graham Newman. This investment company existed for 30 years, running through most of Graham's career, and achieved an average annual return of 17%; today, this number does not seem amazing, but it includes 1929- The Great Stock Market Crash of 1933 - Graham suffered heavy losses in this stock market crash and largely missed the 1934 rally. For him, the major stock market crash means a double blow both financially and mentally. As an investor who is so cautious and focuses on defensive investment strategies, why can't he still avoid losses?
The economic crisis has not yet happened. After that, Graham began teaching a course on security analysis at Columbia Business School, a course he continued into his later years.
In his "Security Analysis" textbook published in 1934, he first put forward the investment idea that would later be called "value investing": First, the price fluctuations in the stock market have a strong speculative flavor (Graham described the stock market as A moody "Mr. Market"), but in the long run, it will inevitably return to "fundamental value" (that is, the actual value of the company's assets and profitability). Prudent investors should not follow short-term price fluctuations, but should focus on looking for low prices. Secondly, in order to ensure investment safety, the most favored stocks are those stocks that are seriously undervalued, that is, stocks whose market price is significantly lower than their basic value. These stocks can provide a sufficient "margin of safety." "The market is a mixture of rationality and emotion. Its appearance is often wrong, and the secret of investment is to invest when the price is far lower than the intrinsic value and wait for the market to correct its mistakes." This famous saying became The ultimate theoretical basis for value investors.
In 1949, on the eve of another great bull market in the United States, Graham, who had already become famous, published another important book: "The Intelligent Investor". Unlike "Securities Analysis", "The Intelligent Investor" does not discuss detailed pricing methods, nor does it dwell on complex financial statement analysis. Instead, it spends most of its space discussing the differences between investing and speculation. “Investment is based on keen and quantitative analysis, while speculation is based on sudden ideas or speculation...Investors seek reasonable prices to buy stocks, while speculators try to profit from the rise and fall of stock prices. "Profits." In an era when the U.S. stock market rose more than 10% per year, Graham still recommended that investors be content with an annual return of 3.5%, which may, in hindsight, be too conservative. In fact, the Godfather of Wall Street himself is tired of Wall Street. Now that he already has everything a financier can have - money, fame, honor and his own academic theories, what's the point of staying on Wall Street?< /p>
In 1956, Graham, who had been on Wall Street for 42 years, finally withdrew from the financial world. Since then, he has focused entirely on financial teaching and research, and has continued to express his views on the market. It was during this year that he began his investing career as a student at Columbia University. This student began to listen to Graham's securities analysis course six years ago, and once obtained the highest score in the history of this course. Since then, he has helped Graham do a lot of investment analysis work. Later generations will call this student the "Stock God" and the "Sage of Omaha." His name is Warren Buffett.
Benjamin Graham - First time entering the stock market
Benjamin Graham was born in London on May 9, 1894. When he was a baby, he moved to New York with his parents during the American gold rush. Graham's early education was completed at Brooklyn High School. When he was studying at Brooklyn Middle School, he not only had a strong interest in literature and history, but also had an unusual love for mathematics. He likes the rigorous logic and inevitable results shown in mathematics, and this kind of logical reason is always the most lacking in the financial investment market characterized by blindness and impulsiveness.
Discussing a shareholding. After graduating from Brooklyn High School, Graham was admitted to Columbia University to continue his studies. Although he had to work part-time to support his life and pay high tuition fees during his studies at Columbia University, he calmly faced all the ups and downs in life and, under the guidance of a group of outstanding mentors, he learned more deeply. Put theory into books and knowledge, and constantly absorb nutrients from knowledge. In 1914, Graham graduated from Columbia University with honors and second in his class. However, in order to improve the family's financial situation, Graham needed to find a job with a better salary. For this reason, he gave up the opportunity to stay in school and teach, and began to enter Wall Street under the recommendation of Principal Cabell.
In the summer of 1914, Graham came to Newberg, Henderson, and Lauber as an information clerk, mainly responsible for posting bond and stock prices on the blackboard, with a weekly salary of $12. . Although this job was one of the lowest professions on the New York Stock Exchange, the future Godfather of Wall Street began his legendary investment life on Wall Street.
Graham quickly proved his ability to the company. In less than three months, he was promoted to research writer. Due to his sufficient literary accomplishment, rigorous scientific thinking, and profound knowledge, he soon developed his own concise and logical writing style, which made him unique in the Wall Street securities analysis arena.
It was Newberg, Henderson, and Lauber that provided Graham with a good place for practice and training, which enabled the future stock guru to become fully familiar with the securities industry. A complete set of business management knowledge, including the actual operation methods of securities trading procedures, market analysis, purchase and shipment timing, stock market environment and stock market sentiment. Although Graham did not receive a formal business school education, this experience derived from personal real money was far more profound and powerful than the description in the book, which laid a solid foundation for his future exploration of stock theory. A solid foundation.
After careful observation, the company owner Newberg discovered that Graham contained huge potential and talent. Soon, Graham was promoted to securities analyst. Being promoted to a securities analyst was the real beginning of Graham's career.
At that time, people were accustomed to using the Dow Theory and the Dow Jones Index to analyze the stock market. However, the analysis of single stocks and securities was still at a relatively primitive and rough stage, and ordinary investors were not sure when investing. Bond investment is generally preferred, while stock investment is generally considered by investors to be too speculative and risky, making it difficult to grasp. The reason why investors make this choice is that, on the one hand, bonds have stable returns, and once the company issuing the bonds goes bankrupt, bond holders have priority over shareholders, so the safety factor of buying bonds is obviously higher than buying stocks. On the other hand, it is mainly because general companies only publish general financial statements, making it difficult for investors to understand their true financial status. Through the financial statements of listed stock and bond companies, as well as the investigation and research of those company assets, Graham found that in order to conceal profits or escape responsibility when clearing debts, listed companies often do everything possible to conceal company assets. The company's financial statements disclose The direct result of this approach is that the stock price reflected in the stock market is often much lower than its actual value. Manipulators can control the rise and fall of stock prices by publishing news, and the stock market operates in an almost disorderly and chaotic state.
Graham decided to take action against companies that concealed large amounts of assets. He began to collect information from various sources such as the listed companies themselves, government management units, news reports, and insiders. Through research and analysis of the collected information, he searched for companies with large amounts of hidden assets.
In September 1915, Graham noticed a mining development company that owned multiple copper mines, the Columbian Heim Company. The company's stock price at that time was $68.88 per share. After Graham learned that the company was about to be disbanded, he collected relevant information about the company through various channels, conducted a detailed technical analysis of the company's mineral resources and stock price, and found that the company still had a large number of unresolved issues. It is a well-known hidden asset. Through calculation, Graham accurately judged that there was a huge price difference between the market value of the company's stock and its actual asset value.
"The Saxon Tire Incident' taught Graham a vivid lesson, which gave him a deeper understanding of the nature of Wall Street. At the same time, it also enabled Graham to draw lessons from it. Two points of experience: one is not to trust the so-called "inside information", and the other is to be highly wary of artificial manipulation of the market. These all prompted Graham to gradually mature.
In 1920, Graham again. Promoted to partner at Newberg, Henderson, and Lauber, he continued to gain more experience through practice, and his investment techniques and investment ideas matured day by day. /p>
In Graham's view, speculation is not a good investment, because speculation is based on news and its risk is very high. When the stock price has risen to the upper end of the high-end, it is difficult to say which one. There is no risk of falling stocks, even blue-chip stocks. Therefore, strictly speaking, the risks involved in investment based on facts and speculation based on news are completely different. If the operation is good, the investment risk contained in its stocks will be small, and its future profitability will be relatively high. At the same time, Graham also believed that risks will always exist in the stock market. Without risks, there would be no stock market and no investment. If investors want to succeed, they need to rely on effective techniques to avoid risks and thereby make profits. Graham applied option trading to avoid investment risks and designed a complete set of systematic insurance plans for his investment portfolio, such as when. When a security is bullish, you only spend a small amount of money to buy its options to buy, and then buy it at a low price at the agreed price when it appreciates in the future; when a security is bearish, you spend a small amount of money to buy its options to sell, so that it will fall in the future. Then sell it at a high price at the agreed price. Option trading can use its leverage to make small gains, so that no matter what the market direction is, there is the potential for investment profit, even if the judgment of the security price direction is wrong, the loss will be limited to the purchase at most. A small amount of money invested in options will not plummet.
Graham's risk-averse techniques are useful for those who are always worried that their investments will be lost due to the vagaries of the securities market. It was undoubtedly a sure-fire strategy for investors. As a result, Graham established his own unique credibility on Wall Street.
In early 1923, Graham left Newberg, Henderson, and Lauber. company, decided to set up his own business. He established the Granher Private Fund with a capital of 500,000 US dollars. Graham decided to use this as a basis to develop his ambitions. The first target he selected was the famous American chemical giant: DuPont.
In 1920, the American arms giant DuPont took advantage of General Motors' financial difficulties of being temporarily unable to repay bank loans, and finally merged with General Motors through a long-planned merger war. DuPont's merger with General Motors formed a cross-shareholding situation between the two companies. By around August 1923, due to the end of World War II and the recovery of the U.S. economy, DuPont lost its source of huge arms profits and its stock price fell sharply. Maintained at around US$297.85; while General Motors' profits rose sharply due to the surge in demand for automobiles, with the stock price per share as high as US$385.
Graham noticed a huge gap between the stock prices of DuPont and General Motors.
After analysis, he believed that since DuPont holds more than 38% of General Motors' shares, and this share is still increasing, the price gap between the two stocks at the current stage of the market is a mistake, and mistakes caused by the stock market will sooner or later Everything will be corrected by the stock market itself. The market cannot turn a blind eye to obvious mistakes for a long time. Once such mistakes are corrected, it will be the time for discerning investors to make profits.
Graham not only bought a large amount of DuPont stock, but also sold an even larger amount of General Motors stock. In this way, he would profit in both directions from the rise in DuPont's stock and the fall in General Motors' stock. Two weeks later, the market quickly corrected the gap between the two companies' stock prices, with DuPont's stock climbing to $365.89 per share and GM's stock falling to $370 per share. about. Graham quickly took profits. Not counting the price difference between the GM shares he sold and the shares he sold, his single investment return rate was as high as 23%. This made Grange Fund shareholders large and small a lot of money.
Grange Fund has been operating for one and a half years, and its investment return rate is as high as more than 100%, which is much higher than the 79% increase in the average stock price during the same period. However, due to the opinions of shareholders and Graham on the dividend plan Due to disagreements, the Grange Foundation had to end up disbanding. But this made Graham unexpectedly meet his best golden partner-Jerome Newman. Newman had extraordinary management skills and was able to handle various complicated matters with ease, which allowed Graham to free up more energy to focus on securities analysis and investment strategies.