Benjamin Graham (1894-1976), author of Security Analysis (1934) and The Intelligent Investor (1949), was a principal of Graham-Newman Corp. (1926-1955). He is also regarded as a (and perhaps the primary) founder of modern financial analysis. Leithner & Co. is a Graham-style value investor.
Graham’s key insight is that “investment is most successful when it is most businesslike. An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return.” Operations not meeting these requirements are speculative. Value investors recognise that price is what is paid and that value is what is received; observe that over time price and value gravitate towards one another but that at any given point in time may diverge (sometimes by a wide margin); and lament that most people rarely recognise – and more than a few wilfully ignore – the fundamental distinction between value and price. Graham’s followers emphatically reject the prevailing view that the price and value of a security (i.e., stock, bond, title to real estate) necessarily coincide at all times.
In order better to appreciate the distinction between price and value, Graham urged market participants to ignore “the market” and to focus upon the individual business which issues a security such as a stock. The investor regards a stock as a share in the ownership of a business, and its value will over time correspond to that of the entire enterprise. From this insight follow two others:
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