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The Einstein of Money

Wednesday, August 8, 2012 13:32

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(Before It's News)

Roger Lowenstein has a nice review in the WSJ of Joe Carlen’s latest book, The Einstein of Money, about the life and times of the great value investor, Benjamin Graham. Mr. Graham’s youngest son is a friend of this blog.

Money quotes from Mr. Lowenstein:

- The notion that the prices of stocks and bonds bear a sane relationship to their underlying value is not, at present, in high regard. Wall Street is widely said to be a betting parlor, if not an adjunct of the underworld. Its repute was even worse when Benjamin Graham published “Security Analysis,” an investment manual that urged investors to calmly dissect securities and then plunge into issues trading at a sizable discount to intrinsic value. Stocks at a discount, Graham wrote, offered a “margin of safety”—a cushion that would protect the investor from loss and, in time, assure him of a reasonable gain.

- Most famously, Graham liberated the ordinary investor from the tyranny of feeling enslaved to the market’s gyrations. In “The Intelligent Investor,” aimed at the lay reader and published in 1949, Graham wrote that the investor in stocks was like the partial owner of a business with a mercurial partner, whom Graham dubbed “Mr. Market.” “Every day he tells you what he thinks your interest is worth.” Some days Mr. Market goes overboard with enthusiasm; on others he is downright depressive. The trick is to invest only when Mr. Market offers a margin for safety—in the belief that, over the long haul, prices will revert to their intrinsic worth. “The Intelligent Investor” became a perennial favorite and, incredibly, remains among the 300 best-selling books on Amazon today (roughly on a par with “Nineteen Eighty-Four” and way ahead of “Shane,” published the same year).

- It is enough to say that, warts and all, Graham was a kind-hearted genius who articulated the cardinal distinction between investing and speculation. As Mr. Carlen underlines: “He formulated a sound system for investment, which . . . can still be productively and profitably applied seven decades after its inception.”