Benjamin Graham was without doubt one of the most influential investment figures of the 20th century and is commonly referred to as the “father of modern security analysis”. Much of his recognition is due to the successes of some of his students, most notably Warren Buffett. Buffett is the only pupil of Graham’s to receive an A+. Buffett credits Graham with providing him with his investment framework, and even went so far as to name his son after Graham! Like many of the great economic minds before him, Graham was able to bring his theories to a mainstream audience through writing several highly influential books, as well as teaching at Columbia University. His book, Security Analysis, written in 1934, is still considered a “bible” for serious investors and his other book, The Intelligent Investor (1949), is considered by Buffett to be “the best book on investing ever written”.
The “Dean of Wall Street”, as he was also known, is credited with being the founder of the investing school known as value investing. Value investing is based on buying shares in businesses at a price which is believed to be undervaluing the business on a fundamental basis. Graham developed the term “margin of safety” to describe the gap between what he believed to be fair value (intrinsic value) for a share and the market price. The bigger the gap between the intrinsic value and the market price, the greater the margin of safety. This obviously worked only when the intrinsic value was higher than the market price.
In recent times, some of Graham’s theories have been challenged by modern day economists; however, his ideas still have a very widespread following.