The Intelligent Investor
In 1949, Ben wrote The Intelligent Investor in order to bring some of his analysis and valuation methods to the attention of the layman. The book is derived from Security Analysis, but presents the material in a more readable and less analytical form, with an emphasis on investment versus speculation and focus on a margin of safety.
Over the years, despite many ups and downs in the markets, the value investment strategies proposed by Graham have continued to flourish and make money as can be seen by the success of some of Ben’s former students and associates (mentioned in the previous article) – some of whom have become very wealthy using his techniques.
Warren Buffett states in the preface that he first read The Intelligent Investor when he was 19 years old and thought it was “..by far the best book about investing ever written. I still think it is.” Buffett considers chapters 8: “The Investor And Market Fluctuations”, and 20: “Margin of Safety as the Central Concept of Investment” as the most important chapters in the book.
After publishing The Intelligent Investor, Ben produced a third edition of Security Analysis in 1951 – bringing the text up to date and adding a list of more special situations relevant to the period. The special situations in the previous edition had gained around 252% between publication of the edition in 1940 and 1948. One particular special situation that came to Ben’s attention in 1948 was Geico which Graham-Newman ended up buying at $27 per share.
Geico had the novel concept of selling discounted automobile insurance by mail to the consumer by cutting out the middleman (the agent), policies being sold only to government employees who, as a group, averaged fewer claims. In 1958, Geico extended the avalability of their coverage to professional, managerial, technical and administrative workers, thus extending their market base from around 15% of car owners to 50%. By 1972, the Graham-Newman holding was worth $16,349 a share at the peak valuation of Geico stock. Although the stock slipped back after that, Ben observed that this one stock generated far more profit for him than all of his other investments combined. In 1996, Warren Buffett purchased all the outstanding shares of Geico and it became a wholly-owned subsidiary of Berkshire Hathaway. Once again, Buffett the pupil followed Graham the teacher.
In 1956, after liquidating Graham-Newman and moving to California at the age of 62, Ben began to lecture at UCLA in an Adjunct Professor role, and divided his time between his homes in California and Aix-en-Provence in the south of France where he died age 82 in 1976.
Bemjamin Graham was a man of many talents, being fluent in several languages, having written a Broadway play, and several books and articles in addition to his investment activities.