Benjamin Graham: Value Investing Lessons

Benjamin Graham: Value Investing Lessons

Today, I watched a video on CNBC’s website (posted on 05/26/08), where Warren Buffett was asked by a college student, what was the best advice he received from his mentor, Benjamin Graham. Buffett said he learned three key lessons from Graham, and that these lessons have been the “bedrock” of his investing career. Buffett learned the lessons when he was 19. They were later set forth in Chapters 8 and 12 in the Intelligent Investor, a book written by Graham in 1949. The three key lessons include:

1 – Buy Businesses – Look at stock as pieces of a business, not as charts, splits, tickers, etc. Determine the intrinsic value of a business and divide it by the number of shares outstanding. If you want to own a piece of the business at that price, buy the stock.

2 – Margin of Safety – When you believe a stock is worth $10.00, you do not purchase it for $9.95. Your analysis will generally not be precise enought when estimating intrinsic value. You need to apply a margin of safety for issues you do not understand and for the uncertainly of the future.

3 – Mr. Market – The stock market is there to serve you, not instruct you.  Invest in businesses based on their intrinsic value. When shares of these businesses decrease because of emotional reactions within the market, you have an opportunity to increase your position, often at a discount.

All contents copyright © 2008, Josh Lowry. All rights reserved.


One Response to Benjamin Graham: Value Investing Lessons

  1. Jason White says:

    Remarkable post!


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