 Reading an author ‘s early writing allows us to see juvenile attempts at expressing a message more fully developed in that author’s later works. Having read through the Intelligent Investor and Security Analysis a few times, reading Benjamin Graham on Investing was an interesting opportunity to do just this.
Rodney Klein has put together a collection of early writings from Benjamin Graham pulled from a selection of shorter magazine articles by Graham dating from the period 1917-1927. Chapters include such topics as: Valuation of Great Northern Oil Certificates, and Is United Drug Cheap at 53?
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Benjamin Graham is known as the father of value investing and is probably one of the most well read and studied investor of the 20th century. While his most famous work The Intelligent Investor is read in business schools around the word, not much is known about the man behind the writing. Much of this is due to the quite reserved life that Graham lead and some also to the fact that he existed before the era of the celebrity investor to understand any author’s great works requires some back ground so I present to you these 5 facts about Benjamin Graham:
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 Over Christmas I have had a bit of a chance to catch up on some reading, one of the books I read through was Garrett Gunderson’s Killing Sacred Cows: Overcoming the Financial Myths That Are Destroying Your Prosperity. In Gunderson’s book he suggests individuals look at investing in the same way that banks do as they have been so extremely efficient. As Gunderson puts it banks mitigate investment risk in personal loans by doing the following:
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- Check your credit.
- Secure their investments with collateral
- Require a down payment
- Determine the interest rate
- Determine the payment
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We made it to the final installment of our Graham vs. Greenblatt series. Throughout the series we examined each of the ratios that Greenblatt recommended in his book The Little Book that Beats the Market. The final posting will look at how Greenblatt draws the ratios together and bring this all back around, so lets get into it.
What is it?
Greenblatt says:
It then assigns a rank to those companies, from 1 to 3,500, based on their return on capital. The company whose business had the highest return on capital would be assigned a rank of 1, and the company with the lowest return on capital (probably a company actually losing money) would receive a rank of 3,500…
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Current ratio is an important one; it shows us how the company will survive in the short term. As I mentioned earlier there are reasons why the company is currently cheap our job is to figure out why and also to build in a safety margin to make sure they are going to survive the reason they are so cheap.
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If you made it through price to earnings ratio, price to book ratio will be a piece of cake.
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 To follow up our Graham intro we will investigate Graham’s first insurance technique of buying on the cheap. Graham used a number of ratios to determine if a company is cheap. The first ratio we need to look at is the Price/Earnings ratio.
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Benjamin Graham had a great investment philosophy. Find great companies determine their intrinsic value and then only buy them when they are cheap. Or as Graham puts it:
apply a set of standards to each purchase, to make sure that he obtains (1) a minimum of quality in the past performance and current financial position of the company, and also (2) a minimum of quantity in terms of earnings and assets per dollar of price.
The Intelligent Investor P347-348 Harper Collins Edition 2003
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