An inventor is rarely celebrated for the life changing product he creates. More often, the trailblazer who integrates the invention into society steals the spotlight. Colonel Sanders did not invent fried chicken; Henry Ford didn’t invent the car, and Bill Gates didn’t invent the personal computer. However, each of these visionaries is inextricably linked to the products they helped to bring to mainstream America.
Benjamin Graham was one such visionary. His investing classic, The Intelligent Investor, marked its 50th anniversary in 1999, yet the media ignored the event. Unlike the Colonel, Ford and Gates who seem to enjoy more accolades as time passes, Benjamin Graham seems to be fading into obscurity. When the 100th anniversary comes to pass in 2049, will anyone remember his lessons?
Ben Graham is widely recognized as the father of “value investing,” a term that is often confused with the practice of buying extremely cheap stocks. While Graham did focus on ridiculously inexpensive stocks, he addressed many other details of investing. In fact, the lessons in his book are so profound, they should be applied to every investment.
Although Graham was probably not the first to discuss how fear and greed influence investors, his genius was to personify the concept into a memorable lesson. He encouraged his readers to imagine the stock market as a salesman he dubbed Mr. Market. Every day Mr. Market tries to sell you something, but sometimes his offering price doesn’t fall within the limits of sanity. At times, Mr. Market offers up his stock at exceptionally cheap prices, and at others, preposterously overvalued.
Graham encouraged his students to be Intelligent Investors by ignoring Mr. Market until he offers a great stock at an unjustifiably low price. When Mr. Market presents the Intelligent Investor with an undervalued security, the Intelligent Investor should snatch it up. Then, when the stock price grows beyond the bounds of what it could possibly be worth, the Intelligent Investor should sell. Graham taught that an investor who relies on his valuations to make investment decisions will maximize his profits while others who follow the every word Mr. Market never fully realize their potential profits.
Graham’s star pupil, Warren Buffett, has modified many of Graham’s concepts. Buffett no longer considers price as the primary factor in his investment decisions; he has said that he would prefer to pay a fair price for an outstanding business than purchase a mediocre business at a deep discount. Still, Buffett remains true to the lesson of Mr. Market. Interest rates have just been cut? The European debt crisis has investors worried? The American dollar is collapsing? Because of Ben Graham, Warren can sit back in his armchair and move onto the sports section. The question is, by 2049, will anyone else be doing it?