Though the American investor Benjamin Graham is no longer with us, his influence continues. Considered the father of value investing and security analysis, his methods and ideas struck chords with Warren Buffett and other wealthy modern-day investors. Mr. Graham committed his ideas to writing, penning The Intelligent Investor and Security Analysis, two of the most well-known books on investing.
Value investing is the practice of choosing stocks of companies that are undervalued by the market. Mr. Graham was an expert at investing with a margin of safety. Investors using this strategy purchase stocks with deflated prices and profit when these stocks increase in value. The subjective nature and the difficulty estimating intrinsic value make this approach challenging.
Expecting volatility and profiting from it were part of Mr. Graham’s philosophy. Stock investing by its nature is volatile and even those who buy gold coins expect a small amount of volatility in the price of gold. According to Mr. Graham, smart investors view market downturns as opportunities to discover great investments. His famous Mr. Market character, the imaginary business partner to an investor, was developed around this concept.
The legendary investor believed that others participating in the market should identify the type of investor they are. There are active and passive investors and there are speculators, who are not really investors at all. People should determine whether they are willing to commit energy and time to become active investors or instead exert less effort and be content with passive returns.
In one of his books, Mr. Graham states that investments are most intelligent when they are most businesslike. His former Columbia Business School student, Mr. Buffett, considers these the most important words ever written about investment. Mr. Buffett said that Mr. Graham wished each day to do something generous, something creative, and something foolish and was best at the first act.