The Six Elements of Intelligent Investing 35demands for the borrowed money, then any short - term fl uctuations
in the stock price may force you to sell at the absolute worst moment.
While investors fi nd value in different places, in my examina-
tion of all investing greats — beginning with the teachings of Ben
Graham — I ’ ve discovered that any successful investing approach
rests on a sound fundamental framework, or mindset. Most of us
are familiar with the names of successful investors: Warren Buffett,
Charlie Munger, Seth Klarman, Peter Lynch, Mason Hawkins, Eddie
Lampert, and Bruce Berkowitz to name just a few. These are some
of the most highly regarded and recognized value investors due to
their superior long - term performance.All Investing Is Value Investing
During the early days of stock market activity, investing was com-
monly perceived as a speculative activity practiced only by the rich
or by those with wild dreams of striking it rich. Many of the pub-
licly traded companies at the time were oil companies with noth-
ing more than land and hopes of striking oil and all the riches that
came with it.
It wasn ’ t until a professor by the name of Benjamin Graham
came along that investing became a more scientifi c process that
could be understood and applied analytically to producing long -
term profi ts. In 1934, while a professor at Columbia University,
Graham coauthored a book with colleague David Dodd titled
Security Analysis. This 700 - plus - page work provided a blueprint for
fundamental analysis of both stocks and bonds. In other words,
Graham instructed readers to focus on the business ’ s assets and lia-
bilities, profi ts, and cash generation. Graham often took a pair of
common stocks in alphabetical order from the stock tables and ana-
lyzed them based on earnings multiples, growth rates, and balance
sheet composition. Then he would illustrate why one business was a
more sensible investment than the other.CH003.indd 35CH003.indd 35 9/2/09 11:07:03 AM9/2/09 11:07:03 AM