Editor’s note: This article was first published in June 2018. Irving Kahn is described as “the 107-year-old investor who is still trading the markets,” but he died in February 2015 at 109, so this was already out of date at publication.
Benjamin Graham is still remembered by many Wall Street investors, because his teachings on stock market investing were key to the success of investors who are still active in the markets today, including, of course, one of his boldest pupils, Mr. Warren Buffett.
In 1936, Warren Buffett’s financial mindset was opened up by the book One Thousand Ways to Make $1000 (a thousand ways to make a thousand dollars, or in other words, how to make $1 million).
Buffett knew that to get there, he would have to learn to invest his money
In 1949, Warren Buffett read The Intelligent Investor, the book written by Benjamin Graham.
Buffett himself admits that the book changed his life: had he not read it, his future would probably have been different.
Graham knew exactly how Wall Street worked, although his methods and ideas were never very popular with investors. Of course, after he beat the market year after year, investors became interested in his method.
At a conference, Graham was asked whether he thought Wall Street investors and analysts were good at forecasting companies and market movements and got it right. Graham answered along these lines:
We have been asking ourselves these questions for several generations, and I have to say frankly that our studies indicate the following: when it comes to investing, you have two options.
The first would be to invest according to the market consensus (the opinion of the professionals). The second would be to toss coins and invest according to whether they come up heads or tails. For all practical purposes, the result you would get would be exactly the same.
Everyone on Wall Street is very smart, so much so that their recommendations are already reflected in the prices at which shares trade, and therefore whatever happens in the future represents what they do not know.
Lessons from Benjamin Graham that other brilliant investors learned
Irving Kahn on Benjamin Graham
In an interview, Irving Kahn (the 107-year-old investor who is still trading the markets) said that all the investors he had known who were followers of Benjamin Graham, every single one of them, had something in common: they never lost money.
“Benjamin Graham believed in cash. He didn’t like companies that had a lot of bonds.”
Weinberg on Graham
Marshall Weinberg said that Graham taught him to spot potential companies so cheap that you could sleep soundly whatever happened in the markets. “We were fine.”
“I attended a lecture by Benjamin Graham, and he began the course by saying that if you wanted to make money on Wall Street, you needed a psychological attitude like the one described by the philosopher Spinoza. At that moment I almost got up and walked out of the lecture.
“Graham then explained a famous phrase of Spinoza’s, which said that you must see things under the aspect of eternity. He meant that if we made a good investment, there was no reason to sell it, and we could leave it as an inheritance to our descendants. That talk completely changed the way I thought about investing.”
“He taught me to focus only on the fundamentals of companies and forget about the noise of the markets, but above all, he taught me to be patient.”
See also: The best books for understanding stock market investing
The lesson Warren Buffett learned from Benjamin Graham
“He taught me to diversify properly, and not excessively. If we have invested in 8 companies that we consider good investments for the future, then when it is time to put more capital into the market, the better option is to add to our positions in the companies we already own, especially if their price has fallen because of a market correction.”
Edwin Schloss also has something to say about Graham
“You have to be willing to buy something that nobody else wants to buy, as long as it is cheap. Graham only wanted to buy companies that were undervalued by the market and had growth potential, or great companies that had been excessively punished by the market.”
Schloss says that Graham almost always went against the tide.
“While all of Wall Street was falling over itself to get rid of every share of a company, Graham was buying large blocks of its stock. The truth is that, with time, you realise that panic in the markets is a disaster for those who feel it and a great opportunity for the intelligent investor.”
We should not forget that part of Graham’s method is also based on a dividend investing strategy.
Featured image: Ajay Suresh from New York, NY, USA, CC BY 2.0, via Wikimedia Commons.
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