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The Timeless Wisdom of Ben Graham

"Walter Lippmann spoke of men who plant trees that other men will sit under.

Ben Graham was such a man. "

-Warren Buffet

We have created a culture that worships at the altar of hype. Every new trend, every fleeting opportunity, is seized with an enthusiasm bordering on the manic. This obsessive fear of missing out, the dreaded FOMO, drives us to make rash decisions and jump on bandwagons without fully understanding the consequences. We find ourselves trapped in a vicious cycle of short-termism and instant gratification. The once noble goal of securing financial stability has become an insatiable hunger for more, breeding a myopic focus on the present moment at the expense of long-term wisdom and sustainable growth.

Social media amplifies this phenomenon, with influencers and self-proclaimed gurus fanning the flames of our desires, promising quick riches and effortless success. The result is a collective emotional irregulation, where greed and fear alternate, leaving us exhausted and unmoored. Our markets have become glittering casinos. The same is true of our natural and social ecosystems, as we exploit them for short-term gain, paying little attention to the long-term costs. More than ever, it's easy to lose sight of what matters - the slow, steady accumulation of knowledge, the cultivation of wisdom, and the pursuit of a well-lived life.

I feel increasingly hounded and exhausted by the deluge of Telegram messages, notifications, news articles, tweets, threads, posts, Discord updates, and macro markets that bombard me daily. My devices' constant pings and vibrations leave me drained and overwhelmed, and I struggle to keep up with the constant flow of information from various platforms. The pressure to stay informed about the latest global events and market trends weighs heavily.

I find myself turning more and more to the life and philosophy of Benjamin Graham for a contrarian perspective - a way of looking at the world that emphasizes moderation, patience, education, and deliberation. Graham, widely regarded as the father of value investing, had an almost immeasurable impact on the financial world, and it shaped the strategies and mindsets of countless investors over the past century. His ideas, crystallized in his books "Security Analysis" and "The Intelligent Investor," remain as relevant today as they were when first published - perhaps more so in a century already characterized by hype, scandal, and superficiality.

Born in 1894, Graham came of age during a significant economic upheaval. He saw firsthand the devastation of the Great Depression. The crash of '29 left its mark on Graham's psyche and shaped his investment philosophy. Before modern portfolio theory and the widespread use of computers, Graham pioneered a systematic approach to investing filtered through thorough analysis, risk management, and emotional discipline.

Graham's approach was focused on the concept of intrinsic value - the idea that every security has an underlying worth that can be objectively determined through careful study of its financial statements and business prospects. Graham believed that by purchasing securities at a significant discount to their intrinsic value, investors could create a "margin of safety" that would protect them from the vicissitudes of the market. This concept, simple in theory but difficult in practice, remains a cornerstone of value investing.

Graham's ideas were not academic musings. They were battle-tested in the crucible of real-world investing. During the depths of the Great Depression, when many investors were wiped out, Graham's firm, the Graham-Newman Corporation, managed to generate impressive returns for its clients. This success was due to the soundness of Graham's principles and his ability to keep a level head in the face of market chaos.

One of the key themes that emerges from a study of Graham's life and work is the importance of moderation. Graham's approach was, by all accounts, refreshingly measured. He refused to participate in speculative bubbles and instead focused on building wealth slowly and steadily over time. For Graham, investing was not about hitting home runs. It was about consistently getting on base.

This moderate approach can be seen in Graham's emphasis on diversification. He believed that by spreading bets across a wide range of securities, investors could mitigate the impact of any single investment going sour. This was a revolutionary idea before the rise of index funds and ETFs. Today, the concept of diversification is so ingrained in the investing lexicon that it's easy to forget how groundbreaking it was when Graham first advocated for it.

Graham's philosophy was built on patience. He recognized that the market could be irrational in the short term, driven by the whims of emotion instead of the dictates of logic. In his famous allegory of "Mr. Market," Graham likened the market to a manic-depressive business partner offering to buy or sell shares at wildly varying prices based on his mood. The wise investor, Graham argued, would take advantage of Mr. Market's irrationality by buying when prices were low and selling when they were high.

This patient approach required a great deal of discipline and emotional fortitude. It meant resisting the temptation to chase hot stocks or panic when the market crashed. It also required a long-term perspective, a willingness to look beyond the noise of day-to-day fluctuations and focus on the underlying fundamentals of a business.

Graham's emphasis on education was closely tied to the concept of patience. He believed that the best defence against the vagaries of the market was a solid grounding in financial analysis and investment principles. Graham's books, "Security Analysis" and "The Intelligent Investor," were not how-to manuals for picking stocks—they were comprehensive guides to the art and science of investing.

In "Security Analysis," Graham and his co-author David Dodd laid out a detailed framework for evaluating a company's financial strength and prospects. They introduced concepts like the "current ratio" and the "quick ratio," staples of contemporary financial analysis. They also emphasized the importance of looking beyond a company's reported earnings to assess its economic value.

Some years later, Graham's "The Intelligent Investor," published in a more accessible format for the lay reader, distilled these ideas into a more powerful metaphor for the investing world. In it, Graham introduced the "Mr. Market" concept, which remains one of the most powerful metaphors in the world of investing. He also outlined his famous "margin of safety" principle, arguing that investors should only purchase securities when trading at a significant discount to their intrinsic value.

Graham believed that investors needed to approach the market with a healthy dose of scepticism, constantly questioning the conventional wisdom and doing their research. This contrarian streak is evident throughout his writing, as he consistently challenged the prevailing orthodoxies of his time.

The final piece of Graham's investment philosophy was deliberation. For Graham, investing was not something to be done on a whim or a hunch. It required careful, thorough analysis and a willingness to pore over financial statements and industry reports. This diligent approach set Graham apart from many of his contemporaries, who often relied on insider tips or market rumours to make investment decisions.

Graham maintained a deep respect for the complexity of the financial markets. He recognized that there were no easy answers or quick fixes regarding investing. Success requires hard work, discipline, and a constant willingness to learn and adapt.

This deliberative approach is perhaps best exemplified by Graham's famous "10 commandments" of investing, a set of rules that he believed all investors should follow:

  1. Invest with a Margin of Safety: To minimize the risk of loss, investors should invest at a price significantly below a stock's intrinsic value.

  2. Know What Kind of Investor You Are: Graham distinguished between defensive and enterprising investors, each requiring different time and energy levels.

  3. Invest in Undervalued Stocks: Graham advocated investing in stocks priced below their intrinsic value based on fundamental analysis.

  4. Diversify Your Portfolio: Graham recommended diversification across different stocks and asset classes to reduce risk.

  5. Conduct Thorough Research: Graham emphasized the importance of diligent research and analysis before making any investment in understanding a company's financial health and prospects.

  6. Anticipate Volatility and Profit from It: Investors should be prepared for market fluctuations and use them as opportunities to buy undervalued stocks or sell overvalued ones.

  7. Be an Investor, Not a Speculator: Graham made a clear distinction between investing and speculating. Investing requires thorough analysis and a long-term perspective, whereas speculating focuses on short-term gains without substantial analysis.

  8. Ensure Financial Stability and Avoid Excessive Debt: Companies with strong balance sheets and low debt are preferred as they are less risky.

  9. Focus on Long-Term Goals: Graham advised investors to focus on long-term prospects and not be swayed by short-term market movements.

  10. Learn from Mistakes: Continuous learning from past investment decisions is crucial to refining strategies and improving outcomes.

It's easy to dismiss Graham's ideas as quaint or outdated. After all, the markets have changed dramatically since his day, with the rise of computer-driven trading, globalization, and new financial instruments like derivatives and cryptocurrencies.

That dismissive attitude is a mistake.

The core principles of Graham's philosophy remain as relevant as ever. In all the chaos, noise and hype of modern tech and investing, his emphasis on moderation, patience, education, and deliberation is timeless.

Consider the dot-com bubble of the late 1990s. At the time, many investors threw caution to the wind, pouring money into untested internet companies with no clear path to profitability. The result was a speculative frenzy that ended in tears, with the NASDAQ losing over 75% of its value between 2000 and 2002.

Had these investors heeded Graham's advice, they might have avoided the worst of the carnage. Graham-style investors could sidestep much of the damage by insisting on a margin of safety, focusing on fundamentals rather than hype, and having the patience to wait for genuine bargains.

The same lessons apply today. Graham's philosophy is a much-needed dose of sobriety in a market of meme stocks, SPAC mania, crypto and the gamification of investing. It reminds us that investing is not a game. It's a fucking job. And it requires discipline, hard work, and a long-term perspective.

Implementing Graham's ideas is easier said than done. It's impossible without self-awareness, emotional control, and a willingness to go against the crowd. It requires a commitment to lifelong learning. These things are antithetical to the current hype cycles.

The rewards can be substantial for those willing to put in the effort. Graham's track record speaks for itself—as do the records of legions of successful investors who have followed in his footsteps. From Warren Buffett to Seth Klarman to Howard Marks, many of the world's greatest investors have cited Graham as a key influence on their thinking.

Perhaps the most significant element of Graham's legacy is not the wealth he helped create; it's the wisdom he imparted. While his ideas about moderation, patience, education, and deliberation apply to investing, they're also life lessons that can benefit us all. For me, when so much, so often, seems to be spinning out of control, Graham's voice is a source of calm and rationality.

Remember: our greatest investment is not in any stock or bond. It's an investment in ourselves—in our education, discipline, and character. These qualities, more than any financial knowledge, will ultimately determine our success, both in investing and in life.

10 Ben Graham Quotes to Live By:

  1. "Individuals who cannot master their emotions are ill-suited to profit from the investment process."

  2. "The investor's chief problem - and even his worst enemy - is likely to be himself."

  3. "Individuals who cannot master their emotions are ill-suited to profit from the investment process."

  4. "The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The intelligent investor is a realist who sells to optimists and buys from pessimists."

  5. "Never buy a stock because it has gone up or sell one because it has gone down."

  6. "Experience teaches that the time to buy stocks is when their price is unduly depressed by temporary adversity. In other words, they should be bought on a bargain basis or not at all."

  7. "It requires strength of character in order to think and to act in opposite fashion from the crowd and also patience to wait for opportunities that may be spaced years apart."

  8. "You must never delude yourself into thinking that you're investing when you're speculating."

  9. "Investing isn't about beating others at their game. It's about controlling yourself at your own game."

  10. "Unusually rapid growth cannot keep up forever; when a company has already registered a brilliant expansion, it's very increase in size makes a repetition of its achievement more difficult."

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