Distinguishing between investment and speculation

Graham's approach played an important role in distinguishing between investing and speculation. He viewed investing as a means of creating long-term value, while speculation was viewed as an activity aimed at chasing short-term gains.

Difference between Investment and Speculation

Criteria	Investment	Speculation
Meaning	The purchase of an asset with the hope of getting returns.	An act of conducting a risky financial transaction, in the hope of substantial profit.
Basis for decision	Fundamental factors, i.e. performance of the company.	Hearsay, technical charts and market psychology.
Time horizon	Longer term	Short term
Risk involved	Moderate risk	High risk
Intent to profit	Changes in value	Changes in prices
Expected rate of return	Modest rate of return	High rate of return
Funds	An investor uses his own funds.	A speculator uses borrowed funds.
Income	Stable	Uncertain and Erratic
Behavior of participants	Conservative and Cautious	Daring and Careless

The influence of Graham's investment philosophy

Graham retired from the Graham-Newman firm in 1956, but his investment philosophy and teachings continue to influence many investors today through his writings.

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Famous Investors Who Follow Benjamin Graham's Investing Philosophy

1. Warren Buffett

Warren Buffett is the CEO of Berkshire Hathaway and one of Benjamin Graham's most famous disciples. He believes in and practices Graham's value investing philosophy, and it has served him well. Rather than following Graham's philosophy verbatim, Buffett has developed his own investment strategy based on his philosophy. He prefers to invest in quality companies with good management teams, while maintaining the "margin of safety" principle that Graham emphasized.

2. Charlie Munger

Charlie Munger is the vice chairman of Berkshire Hathaway and a longtime business partner of Warren Buffett. He follows Graham's value investing philosophy, but has his own unique approach. In addition to adhering to Graham's "margin of safety" principle, Munger emphasizes an investment approach that avoids complexity and seeks simplicity.

3. Seth Klarman

Founder of the New York-based hedge fund, Margin of Safety Fund, Klarman has a deep understanding of Graham's value investing philosophy, and his investment style is heavily influenced by Graham's Margin of Safety principles.

4. Walter Schroth

A direct protégé of Graham's, Walter Schroth has achieved an average annualized return of 21% over 45 years by adhering to his investment philosophy. He has followed Graham's principles of focusing on long-term value investing and the financial strength of companies.

5. Michael Berry

Known as the "Big Short," Berry followed Graham's value investing principles to predict and profit from the 2008 financial crisis.

6. David Enhauser

The former CEO of Leucadia National in New York, Enhauser is known for following Graham's value investing philosophy. He invested according to Graham's "margin of safety" principle.

These investors developed their own investment styles while still following Graham's philosophy, and their success shows that Graham's investment philosophy is still valid and can be used to develop a variety of investment strategies.

The Relationship Between Benjamin Graham and Warren Buffett

The relationship between Benjamin Graham and Warren Buffett is one of the most important mentor-protégé relationships in the history of investing.

How They Met

In the 1950s, Warren Buffett read Graham's book, The Analysis of Securities, and was impressed. Later, Buffett went to Columbia University, where Graham taught, and Graham became Buffett's mentor.

Graham's Teachings

Graham taught Buffett the principles of value investing. He emphasized that when you buy a stock, you're investing in a company, and it's important to understand and determine the true value of that company. He also encouraged investors to make investment decisions based on their own analysis and judgment, rather than being swayed by market volatility.

Graham's Influence

The most important thing Warren Buffett learned from Benjamin Graham was the principle of "value investing," which centers on making investment decisions based on a company's true value, rather than being swayed by market volatility. Graham used a variety of metrics to determine a company's value, including financial statement analysis, price-to-earnings ratio (P/E), and asset value, reflecting his approach to viewing stocks as investments in companies with real value, rather than simply speculative investments based on predictions that prices will rise and fall.

Graham also emphasized the principle of a "margin of safety" - the idea that the market price of a stock should be low enough relative to its true value, so that investors could earn a high rate of return while reducing their risk. Buffett adopted Graham's value investing principles and built his own investment philosophy, which allowed him to create an investment strategy that was not subject to market volatility and generated stable returns over the long term. It played a crucial role in his growth as a world-class investor.