Benjamin Graham’s memoirs

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Benjamin Graham: The Memoirs of the Dean of Wall Street, is a refreshingly candid story of the man (1894 – 1976) most investors associate with his value investing classic, Security Analysis. His memoirs are not to be read for takeaways to improve one’s investing methods. Rather, his memoirs serve as the story behind the composition of a truly brilliant, multi-talented man, who with fortuitous timing uncovered an opportunity in mis-priced securities that led to a highly successful career in investing. Graham was very serious about his work, but did not take himself too seriously (he was not full of conceit despite his superior knowledge; and he never sought to attract attention).

I was particularly moved by his perseverance. Graham never gave up — he never stopped believing in himself throughout what were difficult times in childhood, as a young college student trying to support his family, as a young man on Wall Street, during the Great Depression, as a “value” investor, as an activist investor, as a lecturer at Columbia, and as a thinker. He was by no means perfect, for instance, he makes no effort to conceal his difficulty with, and attraction to, the opposite sex. However, as much as he preferred to keep relationships with all people simple, he cared very much about others, and always tried to do good by others.

I will now share with you some of my favorite anecdotes, which relate primarily to his activist investing efforts.

His recount of his start in 1926:

When, in all innocence, I made my first effort as a stockholder in 1926 to persuade management to do something other than what it was doing, old Wall Street hands regarded me as a crackbrained Don Quixote tilting at a giant windmill. No experienced person would waste his time trying to change any corporate policy from the outside, especially not in the strong hold of Standard Oil. “If you don’t like the management or what it’s doing, sell your stock” — that had long been the beginning and end of Wall Street’s wisdom in the his domain, and it is still the predominant doctrine.

In 1928, regarding successful shareholder activism (unlocking significant value) at Northern Pipeline, a Rockefeller – Standard Oil affiliate:

In retrospect now I am amazed at our success, for further experience was to teach me that a strong, logical case does not go very far when one is appealing to the mass of feckless stockholders over the heads of and in opposition to the company’s entrenched management.

In 1929, involving another activist investment, this time with the brother of the great (as Graham referred to him) Bernie Baruch also buying stock:

In the spring of 1929 he told me that he had followed my example and bought a lot of National Transit shares, on which  he had made a highly satisfactory profit. He felt he owed me some reward since I had worked hard for all the stockholders without any pay from them. So he offered me the use of the Reposo [a 93′ yacht – house boat according to Graham] for a week. It would cost me nothing except some suitable gratuity to the captain and the crew.

Finally, in describing the then (likely 1920s – 30s) “gentlemen’s game” of Wall Street business, he said it was played by an “elaborate set of rules,” such as, “No poaching on the other man’s preserves.” This refers to there being no hostile takeover bids or use of proxies to effect change. He notes, “Banks and brokers always turned their annual meeting proxies automatically over to management. (That is still largely true.)” He goes on to equate corporate executive privilege to that of military officer POW war-treatment expectations:

In parallel fashion, corporate officials never supported any move that would threaten the jobs or perquisites of the officers of another company, for they expected the same courtesies to be extended to them by all the other club members. It was like the preferred treatment always accorded to officers taken prisoners of war. Their officer-captors made them quite comfortable because they expected the same amenities for any of their own officers who might be taken prisoner by the other side.

Towards the latter stages of his life and career, Graham came to doubt the abilities of professional analysts and pedestrian investors alike to uncover undervalued securities. He seems to have embraced modified indexing on one hand, and a much more checklist-like formulaic and widely diversified value investing approach on the other. This is intriguing considering Graham is the pioneer of value investing. However, having read his memoirs, one gets the sense that there was much more to life for Graham than the stock market. He was a very well-read man, translated poetry, penned his own poems, wrote plays, enjoyed art, and so on. He was no one trick pony and when he was writing his memoirs in the early 60s did not even consider that his accomplishments in value investing would be his legacy. In fact, he thought his proposal for a commodity reserve currency was more worthy. Suffice to say that seemingly no matter what Graham attempted, he enjoyed himself in the process and achieved a level of success of which he was proud — and would be beyond the capabilities of most men.