Benjamin Graham

1. Early Life Shaped Graham's Value Investing Principles

My natural inclination, I believe, was always away from the material and towards the intellectual and even the spiritual side of life.

Heredity and environment. Benjamin Graham's early life experiences, including his family's financial struggles and his mother's emphasis on both luxury and frugality, instilled in him a deep respect for money and a cautious approach to investing. His intellectual inheritance, combined with the realities of growing up in New York City, shaped his unique perspective on the financial markets.

• Grand-nephew of the Chief Rabbi of Warsaw
• Mother's emphasis on luxury
• Tough streets of Manhattan, Brooklyn, and the Bronx

Early influences. Graham's upbringing instilled a sense of reality and a drive to handle himself with his brains, not his fists. The city's school system provided him with an excellent public education, fostering his intellectual curiosity and analytical skills. These early influences laid the foundation for his later success as a value investor.

Caution and skepticism. Graham's family's financial situation stimulated a penchant for caution, which was later reinforced by the Crash of '29 and the Great Depression. This led him to insist on a wide margin of safety in his investments and to deplore speculation as a form of gambling. His personality and talents can be explained in terms both of heredity and environment.

2. Adversity Fostered Resilience and Resourcefulness

Adversity is bitter, but its uses may be sweet.

Family tragedies. The early death of Graham's father and the subsequent financial struggles of his family instilled in him a sense of responsibility and a determination to overcome adversity. These experiences shaped his character and taught him the importance of resilience and resourcefulness.

• Father's death at age 35
• Mother's efforts to support the family
• Loss of family possessions

Self-reliance and independence. Graham's mother's permissive attitude and the tough streets of New York City instilled in him a sense of self-reliance and independence. He learned to handle himself with his brains, not his fists, and to rely on his own judgment in the face of adversity.

Overcoming obstacles. Graham's early life was marked by numerous challenges, including financial hardship, academic setbacks, and personal tragedies. These experiences taught him the importance of perseverance and the ability to bounce back from setbacks.

3. Education Beyond Finance: The Power of Self-Learning

The most important thing that he learned was how to learn—on his own—and how gratifying it was to do so.

Self-education. Graham's memoir documents that the best, and perhaps the only, durable education is self-education. He learned how to learn—on his own—and how gratifying it was to do so.

• Avid reader of great authors
• Mastery of multiple languages
• Continuous process of learning

Humanities over business. Despite his later success in finance, Graham's early education focused on the humanities, including literature, history, and philosophy. This broad intellectual foundation provided him with a unique perspective on the financial markets and helped him to develop his own theories of value investing.

The life of the mind. Graham's career provides ammunition for the counterargument to the thesis that the MBA is the only real educational path into business. He came ultimately to care little for luxury after he mastered "the simplest and most important of all the rules of material welfare: The most brilliant financial strategy consists of living well within one's means."

4. Wall Street in the Roaring '20s: A Cautionary Tale

If you speculate you'll lose your money.

Easy money temptation. Graham's memoir offers a glimpse into Wall Street during the Roaring '20s, a time of unprecedented speculation and easy money. He recounts his own temporary lapse into speculation, highlighting the dangers of succumbing to the temptation of quick profits.

• Savold Tire fiasco
• Bucket shops and fraudulent establishments
• The Crash of '29

The importance of caution. Graham's experience of the Crash and Great Depression reinforced the need for caution and a wide margin of safety in investing. He deplored speculation as a form of gambling and began to look for securities that were so undervalued that they had only the remotest chance of losing market value.

Ignoring the clamor. Graham's confidence in his own powers of reasoning enabled him to formulate and test his theories of value investing and to ignore Wall Street's perennial claim to anticipate the market's direction and timing. He preferred more reliable sources —the actual facts and figures of corporate performance, which he learned and taught his disciples to decode.

5. The Crash and the Commodity Reserve Currency Plan

The peoples of the earth have been promised a fuller peacetime utilization of its resources, the pattern for which has already been exhibited in the stupendous achievements of war production.

Economic insights. Graham's memoir explains his thoughts on one of the most serious problems of the Depression—the fluctuation of commodity prices and its volatile impact on markets and the economy as a whole. This interest gave rise to two books whose importance and current relevance is, unfortunately, obscured by the fact that they have been out of print for more than fifty years.

• Storage and Stability (1937)
• World Commodities and World Currency (1944)

Commodity reserve plan. Graham proposed a way of stabilizing the American economy through replacing the standard tender for the dollar—then gold and silver—with "a basketful of commodities," that is, nonperishable goods like wheat, cotton, and iron that could be purchased by the government with dollars and stored for constant availability to consumers in exchange for dollars.

Humanitarian motive. Graham was deeply concerned—even offended—by the standard practice of destroying commodities for the sake of sustaining prices. He argued that there was no reason that the world economy could not permanently expand, constantly increase abundance, and provide goods to those who had never known anything but poverty.

6. Personal Struggles and the Pursuit of Self-Improvement

Very early in life he set to work like a beaver to build a breastwork around his heart. He embraced stoicism as a gospel sent to him from Heaven.

Emotional limitations. Graham's memoir reveals his struggles with personal intimacy and his difficulties in forming close relationships, both with men and women. He acknowledges his emotional limitations and his efforts to overcome them.

• Inability to acquire close friends
• Shyness and sensitivity
• Stoicism as a defense mechanism

The search for self-understanding. Graham's memoir documents his lifelong quest for self-understanding and his efforts to improve his character. He acknowledges his shortcomings and strives to become a better person, both emotionally and ethically.

The importance of humanity. Graham came to understand the need for less superiority and more humanity. At age 60 and beyond he was to begin his emotional development all over again; he must accept Love not as an experience of life, but as the experience of life.

7. The Unexcelled Fireworks Debacle: A Lesson in Management

If you speculate you'll lose your money.

The lure of easy money. Graham's memoir recounts his involvement with the Unexcelled Fireworks Company, a venture that promised quick profits but ultimately proved to be a disaster. This experience taught him the importance of caution and the dangers of speculation.

• Lack of knowledge about the fireworks industry
• Ousting the less than competent president
• Financial losses and ethical dilemmas

The importance of honesty. Graham sought profits not only safely and by careful research but by the most honest means. His morality stands at the opposite pole of Wall Street operators of the sort played by Michael Douglas in the film Wall Street.

The human element. Graham felt genuine concern about ousting the less than competent president of the Unexcelled Fireworks Company. This highlights his ethical considerations and his concern for the well-being of others, even in the pursuit of financial success.

8. The Northern Pipeline Contest: Standing Up for Stockholders

B. [Benjamin] achieved a degree of independence in any area in which his judgment told him that his conduct ought not to be dictated by mere convention or prejudice.

Shareholder activism. Graham's memoir recounts his involvement with the Northern Pipeline Company, a case in which he acted for unknown fellow stockholders in demanding the distribution of excessive corporate capital. This highlights his commitment to shareholder rights and his willingness to challenge management when he believed it was necessary.

• Demanding the distribution of excessive corporate capital
• Standing up to the management of the Northern Pipeline Company
• Acting for unknown fellow stockholders

Intellectual independence. Graham's greatest strength was his intellectual independence and his integrity. He was affable, but affability seems to have had little to do with his success. He was no salesman.

Ethical considerations. Graham had neither the mind nor the inclinations of the modern takeover artist cynically prepared to wreck a company for personal profit, regardless of the fate of employees, management, and creditors.

9. The Graham-Newman Corporation: A Haven for Value Investing

Graham, like a doctor working over a patient who has fallen to the ground in a riot, rarely lifts his head to contemplate the madness around him, but in his books you can always hear that madness howling in the background.

Value investing principles. The Graham-Newman Corporation operated according to a few well-defined categories, each of which promised a satisfactory rate of profit against relatively minor risks. These categories included arbitrages, cash payouts, related hedges, unrelated hedges, current-asset stocks, and controlled companies.

• Arbitrages
• Cash payouts (liquidations)
• Related hedges
• Current-asset stocks ("bargain issues")
• Controlled companies

Margin of safety. The Graham-Newman "value approach" did not work well enough in the short-selling of highly popular and hence apparently over-valued issues, unless there was adequate protection through holding of a senior, convertible issue of the same company. The "bargain issues" were practically all restricted to the purchase of common stocks at less than two-thirds of their net-current-asset value.

The GEICO exception. However, it is both paradoxical and typical of financial experience generally that the most profitable Graham-Newman operation of all did not meet this exacting requirement. This was the purchase of a 50% ownership of Government Employees Insurance Company at a price only slightly below its asset value.

10. The Enduring Legacy: From Wall Street to the Classroom

The most brilliant financial strategy consists of living well within one's means.

Influence on investment legends. As the founder of the value school of investing, Graham influenced such subsequent investment legends as Warren Buffett, Mario Gabelli, John Neff, Michael Price, and John Bogle.

• Warren Buffett
• Mario Gabelli
• John Neff
• Michael Price
• John Bogle

The Intelligent Investor. For that, the reader must consult Graham's Security Analysis or The Intelligent Investor, investment books which many believe to be the best, and certainly the wisest, ever written.

A lasting impact. Graham's memoir provides rare insights not only into the evolution of Wall Street but into the intellectual power and emotional sensitivity of a man of profound erudition and culture. His memoirs are full of candor, grace, and deep satisfactions for the fortunate reader.

Last updated: February 18, 2025