Rare Video of Benjamin Graham & His Legacy

Today we wanted to highlight extremely rare video footage of value investor Benjamin Graham.  This video was shown at the Columbia Investment Management Conference (notes from the event here).  In addition to the footage of Graham, the video also features interviews with his protege Warren Buffett, Irving Kahn, Charles Brandes and many others.

Here's one of the Ben Graham quotes from the video:

"The explanation cannot be found in any mathematics, but it has to be found in investor psychology.  You can have an extraordinary difference in the price level merely because not only speculators but investors themselves are looking at the situation through rose colored glasses rather than dark blue glasses."   

Marshall Weinberg, a student of Graham's on the teacher: "Ben Graham opened the course by saying, 'if you want to make money on Wall Street, you must have the proper psychological attitude.' "

Warren Buffett on Graham: "Making money did not motivate him."

Embedded below is the video on Ben Graham's legacy:



Of course if you haven't already, stop what you're doing and read Graham's two books: The Intelligent Investor and Security Analysis.

Hat tip to Santangels Review for finding the video.

Collection of Benjamin Graham's Papers: Common Sense Investing

Valuehuntr just posted up an excellent compilation of papers by Benjamin Graham from 1930 to 1974. Graham, the author of pioneer value investing books such as Security Analysis and The Intelligent Investor, also penned numerous papers that were not included in his books.

The piece starts with a brilliant comparison of investment versus speculation. Graham writes that, "It is indeed ironical (though not surprising) that common-stock purchases of all kinds were quite generally regarded as highly speculative or risky at a time when they were selling on a most attractive basis, and due soon to begin their greatest advance in history; conversely the very fact they had advanced to what were undoubtedly dangerous levels as judged by past experience later transformed them into 'investments' and the entire stock-buying public into 'investors'."

It's fascinating how early on Graham was able to pick up on a trend that still entangles investors today. The general investing public seems most prone to buy when they're comfortable with the markets, buying 'high' when instead they should be examining their complacency and doing the exact opposite.

Equally disappointing, Graham observes, was the inability for many investors to purchase stocks when they were trading at the largest discounts. This comes down to human emotion interfering as greed and fear get in the way of rational decision making. The most intriguing thing about all this is that behavior Graham identified decades ago still holds true today.

Embedded below courtesy of Valuehuntr is Common Sense Investing: The Papers of Benjamin Graham:



You can download a .pdf copy here.

If you enjoyed Valuehuntr's compilation, keep in mind that Market Folly readers receive an exclusive 15% discount to their Value Edge newsletter, a monthly publication where they generate investment ideas based on various stock screens for both long and short ideas. Some of the screens include: contrarian, cheap franchises, potential activist targets, overvalued companies with poor business prospects and more. We've posted up a sample issue of their newsletter for you to check out as well. Click here to receive the discount.

Ben Graham ~ Quote of the Week

Given that we touch on value investing topics from time to time, we thought it appropriate today to feature a quotation from the father of value investing, Benjamin Graham. The Market Folly quote of the week is simple and straight to the point:

"Investing is most intelligent when it is most businesslike."

~ Benjamin Graham


Graham's works on investing are of course must-reads and include The Intelligent Investor and Security Analysis. Stay tuned later this morning as we'll post up an in-depth look at treating stocks like business ownership, an inherent principle of value investing outlined by hedge fund AltaRock in their recent investor letter.

What Would Benjamin Graham Buy Today?

What would Benjamin Graham buy today? Well, nothing really.

We thought it would be interesting to try and figure out what Benjamin Graham himself would be buying in the current environment. But, we quickly realized that there's not much that comes close to meeting his standards. If you're unfamiliar with Benjamin Graham (shame on you), then all you need to know is that he was a legendary investor who helped pioneer the ways of value investing. And, he taught Warren Buffett a lot of what he uses today. To become more familiar with Graham's investing methods, we highly suggest checking out The Intelligent Investor by Benjamin Graham. If you had to own one book about fundamental investing, this would most likely be it. Additionally, Security Analysis by Benjamin Graham is another excellent resource. This is the second of Graham's must-read books. The book features the value investing philosophies of Graham and Dodd and a foreword by Warren Buffett. After you've finished reading, you'll be able to tackle balance sheets like none other.

Very few stocks would pass Graham's original stringent requirements in the current environment. And, that in and of itself surprised us. (Guess everything isn't quite as 'cheap' as many thought). But, to be fair, Graham's criteria are very strict. So, we made some changes to establish these value inspired criteria. We set up some scans using a combination of:

• P/E Ratio less than 10 for strict scans, and less than 15 for more lenient scans.
  
• Book Value > 0.01 (Price to book ratio of 1.2 or less for strict scans, and 2 or less for more lenient)
  
• Current Ratio > 1.5
• Return on equity > 15%
• EPS growth > 3% (5 years)
• Dividend growth over 5 years
• Low debt/equity ratio
• Insider ownership

We fiddled with the criteria on numerous scans to generate more ideas. In no particular order, we came up with:

1. Ameron International (AMN)
2. American Eagle Outfitters (AEO)
   
3. Checkpoint Systems (CKP)
   
4. Rowan Companies (RDC)
5. Kennametal (KMT)
   
6. Reliance Steel (RS)
7. Forest Laboratories (FRX)

Keep in mind that all of these companies are on the lists for different reasons. Some met the majority of the criteria, but others made the list due to the fact that they kept appearing on multiple broader or more lenient scans. Again, maybe things aren't as "cheap" as people have argued. A possible problem could be the fact that Graham emphasizes the P/E ratio, and we're in an environment where the 'E' part of the equation (earnings) keep falling. We've posted before about how earnings estimates were too high and that they need to come down.

We're not currently advocating a position in any of these names and do not currently hold any. We merely wanted some names to poke around. For what it's worth, Ameron (AMN) was the most frequent return in all the different scans we did. Just thought we'd toss out ideas for people to investigate. After all, value investor Warren Buffett has said that its time to start buying American.

Also worth noting is the list that Jim Grant's Interest Rate Observer came out with back in December. Their Graham list included names such as Tiffany's (TIF), Radio Shack (RSH), Pfizer (PFE), Cooper Industries Inc (CBE), Nucor Corp (NUE), Cintas Corp (CTAS), Archer Daniels Midland (ADM), & Molex (MOLX). So, research away.

I think the main point here is that Graham's criteria are so strict that it really would take a depression for ideas to pop up on the legitimate Graham scans. Instead, we've opted for a hybrid value scan combining criteria from Graham, Buffett, and Dodd to create a slightly more lenient scan to generate ideas to keep an eye on. If you find any names that can pass Graham's strict tests, do let us know. Otherwise, I guess we'll just have to wait for a depression.