SAPM Word Doc

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Group members

Name Roll No.

Rohit Parad 12115B0002

Vikramsingh Kaintura 12115B0006

Neha Sahani 12115B0026

Aniket Sulakhe 12115B0033

Prathmesh Vernekar 12115B0041

Chirag Gohil 12115B0046


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Benjamin Graham The father of value investing

Benjamin Graham is a British-born American economist and

professional investor. He is known as the father of value investing and

he is a mentor to warren Buffet. He is also an author of two investmentclassic books one of them is Security Analysis, which he wrote along

with David Dodd, was published in the year 1934 and that has been

considered as a bible for serious investors since it was written. And the

other one is The Intelligent Investorpublished in 1949. These are his

two most widely acclaimed books. Graham's followers include Warren

Buffett, William J. Ruane, Irving Kahn, Walter J. Schloss and others.

Buffett, credits Graham for teaching him with a sound intellectual

investment framework, and considers him as the second most influentialperson in his life after his own father. In fact, Graham had such an

overwhelming influence on his students that two of his students, Buffett

and Kahn, named their sons Howard Graham Buffett and Thomas

Graham Kahn after him.

Introduction

He was born on 9th may 1894 in London. His father was a dealer in china

dishes and figurine. His family migrated to U.S when he was just 1 yearold.

Earlier his family was living a very lavish and luxurious life. But his father

passed away in 1903 & their business stumbled and their financial

health also started declining.

He was good in studies hence he got the scholarship in Columbia

university and performed brilliantly. He completed his graduation getting

second class marks in the year 1914. As soon as he graduated he wasoffered a job to become a faculty in three department viz.english, maths

& philosophy. He was just 20 years old when he got such an enviable

offer to become a faculty. But he refused to do so.

His investment career
http://en.wikipedia.org/wiki/Economisthttp://en.wikipedia.org/wiki/Stock_investorhttp://en.wikipedia.org/wiki/Security_Analysis_(book)http://en.wikipedia.org/wiki/David_Doddhttp://en.wikipedia.org/wiki/The_Intelligent_Investorhttp://en.wikipedia.org/wiki/Warren_Buffetthttp://en.wikipedia.org/wiki/Warren_Buffetthttp://en.wikipedia.org/wiki/William_J._Ruanehttp://en.wikipedia.org/wiki/Irving_Kahnhttp://en.wikipedia.org/wiki/Walter_J._Schlosshttp://en.wikipedia.org/wiki/Howard_Graham_Buffetthttp://en.wikipedia.org/wiki/Economisthttp://en.wikipedia.org/wiki/Stock_investorhttp://en.wikipedia.org/wiki/Security_Analysis_(book)http://en.wikipedia.org/wiki/David_Doddhttp://en.wikipedia.org/wiki/The_Intelligent_Investorhttp://en.wikipedia.org/wiki/Warren_Buffetthttp://en.wikipedia.org/wiki/Warren_Buffetthttp://en.wikipedia.org/wiki/William_J._Ruanehttp://en.wikipedia.org/wiki/Irving_Kahnhttp://en.wikipedia.org/wiki/Walter_J._Schlosshttp://en.wikipedia.org/wiki/Howard_Graham_Buffett


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In spite of such a nice offer he chose Wall Street over being a faculty.

He started as a clerk in a bond trading firm then an analyst and then

partner and finally he started his own investment partnership firm.

Earlier dealing in securities was just a speculation business but hepioneered the science of investing as against speculation. As hardly

some attention was paid on fundamental of the business of the

company.

Ex. In 1925, in the course of his research he came across some

interesting findings. Northen pipeline co. held at least $80 a share in

high quality bonds. Northen pipelines stock price at that point of time

was $65 a share. Graham exploited this discrepancy by buying the stock

and persuading the management to raise the dividend. Three year later

he walked away with $110 a share, a return of almost a 70%. But during

the crash of 1929-32 he lost 70% of his portfolio but yet with the help of

his method he was doing better when market was still pessimistic. From

1936 until his retirement in 1956 Graham Newman Corporation the

partnership firm gained almost 20% annually (14.7% after accounting for

fees). This was the great performance Wall Street has ever seen when

rest of the market was giving 12.2% return.

According to him, an investors has two real choices the first one is to

make serious commitment in time and energy to become a good investor

who spends time on analysing the fundamental of business and

company to earns an expected return and if this is not possible for an

investor then the other choice is to invest in less risky securities and

earn less return. He turned the academic notion of risk=return by saying

work=return, the more work you do the more profit and return you enjoy.

He explains the difference between speculators vs. investor

Not all the people in the stock market are investors. He believes that

people should know the fact that whether they are investors or

speculators. An investor looks at a stock as a part of a business and the

stakeholder as the owner of the business, whereas speculator is the one

who plays with expensive piece of paper with no intrinsic value. He says

there is always an intelligent speculation and also intelligent investment

but one should understand in what he/she is good at.


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He also said to divide investment in stocks and bonds. This will help in

avoiding market down turn by achieving growth of capital through bonds

income. His strategy was to preserve a capital and then try to make it

grow. He suggested having 25% to 75% investment in bond varying this

on market condition this helps to stop an investor from being a

speculator.

His principle

Buying a stock in a company is like buying the business

Know your investing style

Active and passive which can also be explained as defensive an

enterprising.

Defensive- the one who does not do any research and earns average

returns.

Enterprising the one who does analysis and hopefully earns higher

return.

Use market fluctuation to your advantage- do not panic and sell

your stock just because your stock is undervalued. If you have

proper research then definitely someday or the other market will

correct itself and you will get fair returns. Investing in stocks means

dealing with volatility. Instead of running for the exits during times

of market stress, the smart investor greets downturns as chances

to find great investments. Graham illustrated this with the analogy

of Mr. Market, the imaginary business partner of each and every

investor. Mr. Market offers investors a daily price quote at which he

would either buy an investor out or sell his share of the business.

Sometimes, he will be excited about the prospects for the business

and quote a high price. Other times, he will be depressed about

the businesss prospects and will quote a low price. Because

the stock market has these same emotions, the lesson here is that

you shouldnt let Mr. Markets views dictate your own emotions or,
http://www.investopedia.com/terms/v/volatility.asp?partner=forbes-pfhttp://www.forbes.com/2009/02/23/graham-buffett-value-personal-finance_benjamin_graham.htmlhttp://www.investopedia.com/terms/v/volatility.asp?partner=forbes-pfhttp://www.forbes.com/2009/02/23/graham-buffett-value-personal-finance_benjamin_graham.html


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worse, lead you in your investment decisions. Instead, you should

form your own estimates of the businesss value based on a sound

and rational examination of the facts. Furthermore, you should only

buy when the price offered makes sense and sell when the price

becomes too high. Put another way, the market willfluctuate

sometimes wildlybut rather than fearing volatility, use it to your

advantage to get bargains in the market or to sell out when your

holdings become way overvalued.

Always use margin of safety how much return you want as per

your analysis, what would be the highest return that company can

give and thats how you can reduce risk. Margin of safety is theprinciple of buying a security at a significant discount to its intrinsic

value, which is thought to not only provide high-return

opportunities but also to minimize the downside risk of an

investment. This concept is very important for investors to note, as

value investing can provide substantial profits once the market

inevitably re-evaluates the stock and raises its price to fair value. It

also provides protection on the downside if things dont work out

as planned and the business falters. The safety net of buying anunderlying business for much less than it is worth was the central

theme of Grahams success. When stocks are chosen carefully,

Graham found that a further decline in these undervalued equities

occurred infrequently.
http://www.investopedia.com/terms/o/overvalued.asp?partner=forbes-pfhttp://www.investopedia.com/terms/m/marginofsafety.asp?partner=forbes-pfhttp://www.investopedia.com/terms/i/intrinsicvalue.asp?partner=forbes-pfhttp://www.investopedia.com/terms/i/intrinsicvalue.asp?partner=forbes-pfhttp://www.investopedia.com/terms/f/fairvalue.asp?partner=forbes-pfhttp://www.investopedia.com/terms/o/overvalued.asp?partner=forbes-pfhttp://www.investopedia.com/terms/m/marginofsafety.asp?partner=forbes-pfhttp://www.investopedia.com/terms/i/intrinsicvalue.asp?partner=forbes-pfhttp://www.investopedia.com/terms/i/intrinsicvalue.asp?partner=forbes-pfhttp://www.investopedia.com/terms/f/fairvalue.asp?partner=forbes-pf

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