PO
ON
W
AT
CH
AR
A-A
MP
HA
IW
AN
Benjamin Graham’s Timeless Advice
B
enjamin Graham had all the
traits of a great investor—brains,
curiosity and discipline. An im-
migrant to New York, his family was
plunged into poverty when his father
died. But Ben was a smart kid. He
learned to read six languages in high
school and went on to attend Columbia
University, where he became a Greek
scholar and, on graduation, received
offers to teach from three disparate
departments: mathematics, philosophy
and English. Instead, he chose Wall
Street, eventually teaching at Colum-
bia’s business school, where Warren
Buffett was among his students.
Graham had several big ideas. One
was that the stock market was suscep-
tible to the same kind of rigorous study
as any academic subject. The result
was Security Analysis,
the classic book he
wrote in 1934 with
David Dodd. Another
big idea was that inves-
tors should strive to
own stocks that are
priced low enough that
they provide a “margin
of error.”
Extreme value can
produce extreme gains. As Graham
wrote in the 1964 edition of The Intel-
ligent Investor (first published in 1949),
“In many cases there may be less real
risk associated with buying a ‘bargain
issue’ offering the chance of a large
profit than with a conventional bond.”
You don’t have to be a brilliant ana-
lyst like Graham to recognize the
value in value today. A study by Fidel-
ity found that over the 26-year period
through 2015, large-cap value stocks
returned 9% compared with 8.6% for
large-cap growth. Since then, how-
ever, growth has clobbered value.
Over the past three years, for exam-PRICE EQUITY INCOME (PRFDX), which owns
value stocks that pay good dividends,
including THE SOUTHERN CO. (S O, $6 4), the
Atlanta-based electric utility, now
yielding close to 4%.The big idea. Graham’s third—and per-
haps most important—idea involved
psychology. He wrote in The Intelli-
gent Investor, “The investor’s chief
problem—and even his worst enemy—
is likely to be himself.” Here, he was
ahead of his time. The rise of behav-
ioral economics in recent years has
shown that people often make finan-
cial decisions irrationally. For example,
investors tend to devote more
of their portfolio to stocks
when shares have run up
than when prices have
fallen. By contrast, shop-
pers are more attracted
to sweaters when they
go on sale.
How do we protect our-
selves against our own
worst instincts?
The best answer
is dollar-cost
averaging,
investing the
same amount
of money
regularly
in the
same
bundle
of stocks
or mutual
funds—or,
for that matter,
in a single index
fund such as ETF
SPDR S&P 500 (SPY,
$322) or SCHWAB
TOTAL STOCK MARKET
(SWT SX).ple, Vanguard Russell 1000 Growth,
an exchange-traded fund geared to
a broad growth-stock index, has re-
turned an annual average of 20.4%.
VANGUARD RUSSELL 1000 VALUE (SYMBOL
VONV, $120) has returned just 9.6% an-
nually. Value seems to be particularly
undervalued right now. (Stocks and
funds I like are in bold. Prices and
returns are through December 31.)
Or simply check out the portfolio
of DODGE & COX STOCK (DODGX), a superb
large-cap value fund. Top holdings in-
clude WELLS FARGO (WFC, 54), a venerable
financial company beset by recent
management turmoil, and OCCIDENTAL
PETROLEUM (OXY, $41), whose shares are
down by nearly half since May 2018.
Other value-oriented mutual
funds to consider include HOME-YOU DON’T HAVE TO BE A
BRILLIANT ANALYST LIKE
GRAHAM TO RECOGNIZE THE
VALUE IN VALUE TODAY.STEAD VALUE
(HOVL X), whose
top 10 hold-
ings include
PARKER-
HANNIFIN
(PH, $206),
a company
that sells all
kinds of monitoring
equipment; JANUS
HENDERSON SMALL CAP
VALUE (JSC V X), which
has been loading up
on financial-services
stocks; and T. R O WESTREET SMART James K. GlassmanCommentaryKIPLINGER’S PERSONAL FINANCE 37