12 THE WARREN BUFFETT WAY
BENJAMIN GRAHAM
Graham is considered the dean of f inancial analysis. He was awarded
that distinction because “before him there was no [f inancial analysis]
profession and after him they began to call it that.”^1 Graham’s two most
celebrated works are Security Analysis,coauthored with David Dodd,
and originally published in 1934; and The Intelligent Investor,origi-
nally published in 1949.
Security Analysisappeared just a few years after the 1929 stock
market crash and in the depths of the nation’s worst depression. While
other academicians sought to explain this economic phenomenon,
Graham helped people regain their f inancial footing and proceed with a
prof itable course of action.
Graham began his career on Wall Street as a messenger at the bro-
kerage f irm of Newburger, Henderson & Loeb, posting bond and stock
prices on a blackboard for $12 a week. From messenger, he rose to
writing research reports and soon was awarded a partnership in the
f irm. By 1919, he was earning an annual salary of $600,000; he was
twenty-f ive years old.
In 1926, Graham formed an investment partnership with Jerome
Newman. It was this partnership that hired Buffett some thirty years
later. Graham-Newman survived the 1929 crash, the Great Depression,
World War II, and the Korean War before it dissolved in 1956.
From 1928 through 1956, while at Graham-Newman, Graham
taught night courses in f inance at Columbia. Few people know that
Graham was f inancially ruined by the 1929 crash. For the second time in
his life—the f irst being when his father died, leaving the family f inan-
cially unprotected—Graham set about rebuilding his fortune. The haven
of academia allowed him the opportunity for ref lection and reevaluation.
With the counsel of David Dodd, also a professor at Columbia, Graham
produced what became the classic treatise on conservative investing: Se-
curity Analysis.Between them, Graham and Dodd had over f ifteen years
of investment experience. It took them four years to complete the book.
The essence of Security Analysisis that a well-chosen diversif ied
portfolio of common stocks, based on reasonable prices, can be a sound
investment. Step by careful step, Graham helps the investor see the logic
of his approach.