Ben Graham wrote Security Analysis in 1934. The second edition would be published six years later and is heralded as the bible, a beast of a book, on the art of financial analysis. But almost two decades before the first printing of Security Analysis, Graham laid the groundwork for his thought process while writing for The Magazine of Wall Street.

I came across 33 of his articles written from 1917 to 1921 (he wrote for the magazine up till 1927, I believe) and have been reading them over the past two weeks. Combined, they offer some insight into his early investment philosophy, investigative mindset, and process of analyzing companies.

The biggest takeaway is how inconsistent company reporting was back then. There were no rules. The SEC didn’t exist. Graham repeatedly complained about the lack of available information and even goes into detail about how he had to look up war tax records to reverse engineer company earnings.

Another takeaway was his consistency in breaking down the best, worst, and most likely scenarios around a company. He also repeatedly focused on one thing after relating the “story” behind a stock – “Let us see to what extent this opinion is justified by the facts.” Beyond that, was a sense of the impact World War I, and its end, had on companies and the economy.

Rather than diving into the details of each article, I thought I’d share some of the broader wisdom wrapped into his analysis. Continue Reading…

As mentioned in the last post, Ben Graham contributed to the 1933 Senate hearing Investigation of Economic Problems. His letter was titled “Sounder Money and Better Business.”

I read it the other day to see what he had to say. It’s all economy stuff. So you won’t find wise words on investing, markets, or behavior. But if you have an interest in the Great Depression and a grasp the problems plaguing the U.S. at the time, you might find this interesting too.

Here’s Graham’s take on the problem:

…the plan attacks directly the central paradox of the depression, namely, poverty caused by superabundance, by transforming our surplus of commodities from a cause of national disaster into a source of national strength…

General overproduction has been termed a theoretical impossibility, but it has proved also a practical and disastrous actuality. This has been due to the failure of effective purchasing power to keep pace with increasing production…

Under present conditions, when production in general outstrips consumption, the whole economic mechanism is thrown out of gear. Deflation and depression are the only remedies. The adjustment is always painful, sometimes protracted, and in this instance almost fatal.

Continue Reading…

Out of curiosity, I went digging for more info on the strategy Ben Graham used in his early fund back in the 1920s.

As was pointed out in the last post, he was buying undervalued stocks (the long-only portion) found through his own fundamental analysis, along with a separate hedging strategy, and some margin debt thrown in for good measure.

There’s was nothing really funky going on beyond that. Graham was very much focused on risk — minimizing losses — but, unlike his post ’29 strategies, he clearly was trying to maximize gains too.

In an article written in 1920, Graham outlined his hedging strategy. Continue Reading…