Thursday, July 31, 2008 0 comments ++[ CLICK TO COMMENT ]++

Geoff Gannon's Excellent Post About Benjamin Graham

Geoff Gannon of GannonOnInvesting blog has an excellent article on Benjamin Graham's thinking and investing strategies. The post was prompted by Jason Zweig, who you may recall is famous for being the editor of the latest version of The Intelligent Investor, says that Benjamin Graham would not invest in financials right now. Geoff Gannon says Graham likely won't either, but that Zweig's reasoning is incorrect. Tom Brown also doesn't agree with Jason Zweig but I am not sure how much of a vlue investor Tom Brown is (I'm not as familiar with him, although I have read nearly all of his public articles about the monolines.)

I haven't read Geoff Gannon for very long (only about one or two years) but I would say this is arguably his best post ever. I like how he ties in varying elements of a superinvestor like Graham--actual practice, tactics, thoughts and justifications--into the present world. If you are an investor with an interest in value investing, I highly recommend reading the post. Even if you don't follow Graham's strategies or thinking (most Buffett followers don't,) it is insightful to understand differing styles.

Before we can answer what Graham would do today, we need to know what he did do in his own lifetime. When writing about Graham, one needs to consider three separate categories: what Graham practiced, what Graham preached, and what Graham’s principles were.

On another note, a comment from a reader to the Gannon post asks who is closest to Graham now: Klarman, Whitman, etc. Anyone have any ideas?

I am not a pure value investor so I don't follow the various superinvestors as closely as some others, but I think Walter Schloss is the closest to Graham. A present-day Graham would be operating just like Schloss, and investing in things neither you nor me have heard of.

Seth Klarman also comes close to Benjamin Graham with one big exception. The exception happens to be the fact that Benjamin Graham generally held a diversified portfolio of many holdings, whereas Klarman is a concentrated investor. Apart from this portfolio tactic, Klarman's thinking is very close to Graham.

Warren Buffett doesn't come close to Graham anymore. The main reason is that Buffett is primarily a control investor, whereas Graham wasn't. Buffett also places heavy emphasis on management, ability to profit immensely from intangibles (eg. ROE can be much higher if company has high intangibles and low tangibles,) and his emphasis on paying fair price (Graham always went for the cheap price.)

Martin Whitman, who calls his style 'safe and cheap,' is also somewhat close. But he has said many times that he does not follow 'Graham & Dodd' as closely as Graham would have. Whitman's main argument is that SEC regulations in the 50's(?) has resulted in more public information being made available (this means you don't have to treat a company as much as a black box as Graham would have). Furthermore, Graham places far more emphasis on earnings than Whitman does.


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