Dynamic Duo
Benjamin Graham and Warren Buffett have been revered for their successes in the investment world, each contributing new ideas and a steadfast commitment to their process. These disciplined, often-revered investors offer us much to learn from, and comparisons are often drawn between the two. Today, we’ll review key elements of their investment styles, many of which are applied by investors today.
Thinking like Graham
Benjamin Graham is known as the founder of modern security analysis and the “father of value investing1”. He developed early principles of valuation and quantitative theories, among other things, introducing a style of thinking that led to breakthroughs in neuropsychology and behavioural finance2. A brilliant thinker ahead of his time, he wrote several groundbreaking financial texts and became a professor at Columbia University, influencing generations to follow. Value investing is something that many of our clients ask us about, and of course, we’d be happy to discuss how this concept is represented in our investment approach. For example, we can discuss this by thoroughly evaluating investments, maintaining a disciplined proven process while following trends, and understanding the need for a margin of safety. We may also see large parallels in our long-term approach to investing. Our philosophy doesn’t entertain “get rich quick” ideas and instead, looks to the tried and true measures that result in steady growth and wealth preservation.
Buffett’s famous approach to investing
Warren Buffett has made his approach clear: he values companies and investment opportunities that are smart, attainable and easy to understand. Complex isn’t always better, and harder doesn’t necessarily yield a better return – so why struggle? He evaluates businesses based on their competence in management, their finances and their core values. All of this helps to determine their suitability as a long term investment. One of his best known quotes is, “I don’t look to jump over seven-foot bars; I look around for one-foot bars that I can step over3.” We tend to agree, as the best opportunities are often the least complicated. This approach may be less exciting than watching stock values shoot up and down in a single week or month, but it’s certainly more reliable and better for your wallet.
The best of both worlds
If you’re wondering about the connection between Graham and Buffett, there are several. For example, Graham taught a young Buffett at Columbia University’s school of business (he received a rarely-awarded A in the course)4. Buffett has publicly praised and recommended Graham’s book, The Intelligent Investor (published 1949), calling it the best book about finance ever written5. In fact, he’s gone as far as saying, “all important ideas relating to investing are in that book.6”
We can learn much about thinking like Benjamin Graham and investing like Warren Buffett by listening to Buffett’s own interpretation of Graham’s work: Think of investing as owning a business – you don’t want something that dramatically “wiggles” up and down in value. Have the right attitude toward market movement (that is to say, it will happen – so be prepared) and afford yourself a margin of safety (don’t drive a large, heavy truck over a small bridge)7.
We couldn’t agree more, and would be pleased to discuss your financial plan and investments to ensure that your own bridge is secure. To speak to our team, please contact 604 691-7209.