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Warren Buffet and Benjamin Graham

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2 minute read

This article is part 2 on Warren Buffett.  It’s not necessary to read the previous article to enjoy this piece or learn from it, though it will add another layer of context. To view that article, click here.

 

Warren Buffett once said that Benjamin Graham’s influence was second only to his father’s, Howard Buffett. Howard was an impressive person; an investor, businessman, and a Republican Representative in the House for 4 terms.

Though Warren did not mark Benjamin Graham as his biggest influence, it is still an amazing compliment. It stands out heavily because Warren has always been known for thinking for himself, and forging the way he sees best despite what others may think. When Buffett says someone has influenced him, it is a potent admission.

The book that changed Warren’s life and gave him such strong faith in Ben Graham was called The Intelligent Investor. It was published in 1949, when Warren was 19 years old. It instantly became gospel to him, and why Buffett sought him out as a teacher. The Intelligent Investor is a book on how to invest with a focus on value – a principle championed by Graham.

 

The three tips that Buffett held onto are as follows:

1. “A stock is the right to own a little piece of a business.”

This may seem obvious, but people get caught up in the stock’s value on the market. You cannot forget that the stock is only valuable if the company is, despite how the market prices it.

2. “Use a margin of safety.”

This simply means to buy stocks that the market is not assigning a high enough value, so that the gap in true value and market valuation gives you safety.

3. “Mr. Market is your servant, not your master.”

Graham made the market into a human character and taught his students that this character was their partner. He focussed on how this character is irrational and emotional. This is beneficial if you understand it, since making deals with an emotional and irrational person gives a much higher chance that you can find a better deal. This analogy also highlights the idea that you cannot view market valuation as a fact. It will often be heavily influenced by random human elements rather than logic.

 

In the future we will have a further article about Buffett’s life story and the strategies and philosophies he has aligned himself with.

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