The Value Investor

This past Saturday I attended a client review meeting with a money manager we work with. This half day session was an extremely interesting view into the minds of the managers. These managers embrace the theory of value investing - a focus on purchasing stocks of a company when the stock is at a "discount" and selling at a pre-determined point. The stock is a value at the purchase price - like buying something on sale and then selling it again for its normal price. Now, the explanation I just gave is very basic and value investing is more complex than that. Value investing takes patience and discipline.

The founder of this management firm is a dynamic individual and during his portion of the presentation he spoke of a man named Benjamin Graham. Benjamin Graham was an economist and professional investor who is often called the "Dean of Wall Street". He is considered the founder of the value investing theory. Warren Buffett, the mega-billionaire investor, was a student of Benjamin Graham and was so endeared with his teachings that he named one of his children after him. Buffett, who credits Graham as grounding him with a sound intellectual investment framework, described him as the second most influential person in his life after his own father.

Value investing takes emotion out of the process and focuses on business review and sound principles. Graham writes: "An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative."

I have decided to learn more about Mr. Graham so that I can understand his practice of value investing. After all, if it has worked for the extremely successful management firm I heard from on Saturday, and has worked for Warren Buffett, why not? Graham has written several books on the subject, two of which are "The Intelligent Investor" and "Security Analysis".