In 1984, in memory of Benjamin Graham and D**ed LOn the 50th anniversary of the publication of the "** Analysis" co-authored by Dodd, Warren Buffett was invited by Columbia University to give a speech entitled "The Superinvestors of Graham-and-Doddsville", which is also one of Buffett's most brilliant and well-known speeches.
Warren Buffett recounted,Graham's followers have achieved great success based on his approach to value investing.
If you are interested in value investing, you can take a look at Warren Buffett's speech, although nearly 40 years have passed, it can still inspire us.
Warren Buffett mentioned 9 successful cases in his speech, most of which are not from professional backgrounds, and some do not even have a college degree, but rely on value investment methodsFocusing on only two numbers: ** and value, has been successful in the long run.
Specifically, most of Buffett's successful investors in the case met from 1950 to 1960 and reviewed their performance nearly 30 years after giving the presentation, and they were all investors who pursued the value investing method advocated by Graham Dodd.
The common denominator of knowledge among these investors from Graham Dodd Village is that they are looking for the difference between the value of the business (company) and its value, and profiting from it.
Their idea is very simple: if a company is worth a dollar, if I can buy it for 40 cents, I will make a profit sooner or later.
Buffett also said that people either understand value investing right away or never understand it for the rest of their lives. In the article, it only took 5 minutes for the two investors to accept the use value investment method.
Warren Buffett believes that the current academic community (at the time of his speech) has deviated from the value investment method, and there is no value in analyzing a large number of parameters such as ** and trading volume brought about by informatization"As a friend of mine said," he commentedFor a man with a hammer in his hand, everything looks like nails. ”
The following is the essence of Warren Buffett's speech compiled by the representative of this investment homework lesson (WeChat ID: touzizuoyeben) and shared with you (the first person "I" in the article refers to Buffett):
Someone may ask:Graham and DoddIs the value investment method advocated outdated?
Today, many academics will answer: Yes. They think,The market is efficient, so all factors related to the state of the economy and the company's prospects will be reflected in the market. This is because there are a lot of smart analysts out there who try to apply all the information they know so that they don't deviate from what makes sense.
Proponents of this theory argue that there is no such thing as an "underestimated" one; And those investors who are so-called "able to beat the market" are just flukes. Because, according to its theory (** has all the information reflected), it is impossible to have the ability to "beat the market in the long run".
Anyway, I'm going to introduce you to a group of investors. Year after year, they have achieved better investment results in the S&P 500.
If you do a statistical work in the "investment world", you will find that a very high percentage of successful people originated from a small intellectual village called "Graham Dodd". The high concentration of successful investors in this small village cannot be explained by mere coincidence or luck.
Nor can we say that they made the same bet because they followed the instructions of a leader. Their parents just formulated a set of knowledge theories of "guessing coins", and these students applied that theory to make their own judgments in their own way.
The common denominator of knowledge among these investors from Graham Dodd Village is that they are looking for the difference between the value of the business (company) and its value, and profiting from it.
When they make a decision to have a ticket, they never care what day of the week or what month it is(This is what the theorists of "market efficiency" are concerned about).
Coincidentally, when a businessman wants to do a business, he is unlikely to care about the day of the week or month of the week. （Graham Doddof investors are actually doing the same thing as these businessmen, except that they are doing a business through the market).
This batch of oursGraham Doddof investors, of course, do not care about some parameters such as beta, capital asset pricing model, return on investment ratio, etc. In fact, most of them probably don't even know what these things are. They only care about two numbers: ** and value.
I've always wondered why there is so much research on the relationship between ** and volume, as well as various charts. Would you be presumptuous to ** a company just because it was raised last week?
Today, the reason why there is so much research on parameters such as ** and volume is because in this computer age, we can easily obtain so much information.
These studies are not necessarily of much value, but because we have so much information and scholars have put a lot of effort into learning about mathematics. Even if the material is not useful, when people have the relevant skills, it seems that it is a sin not to use it.
As a friend of mine said:For a man with a hammer in his hand, everything looks like nails.
I think that this common family of wisdom that we are talking about is worth studying. Incidentally, while there has been a great deal of research in academia on the impact of variables such as volume, seasonality, and capitalization size on performance, no one has studied the extraordinary concentration method used by value-oriented winners.
Let me begin my research on this result by reviewing the experiences of four people who worked at Graham Newman in 1954-1956.
There were only four people there, and they weren't picked out of a few thousand. After Graham's course, I offered to volunteer at Graham Newman, but he turned me down on the grounds that I thought too highly of myself. He takes this very seriously. After many requests, he finally hired me.
At that time, the company had three partners and four of us at the "farmer" level. All four of us left in 1955-1957 (the company went out of business in 1957); Now we can get the investment records of three of them.
Case 1: Walter Schloss
The first example is Walter Schloss. Walter never went to college, but he attended Benjamin Graham's evening classes at the New York Financial Association. He left Graham Newman in 1955 and has achieved the investment performance shown in Table 1 over a period of 28 years.
After listening to my account of Walter, Adam Smith wrote this in his 1972 book Supermoney:
He doesn't have anything special *** actuallyPeople in Wall Street circles didn't know anything about him, and no one told him anything about it. He just consults the data in various manuals and asks for annual reports, and that's his message**. When I was introduced to him, Warren himself said the same thing about him as I did: "He never forgot that he was taking care of other people's money, and this awareness made his aversion to losing money even stronger. "He's completely honest and knows himself very well. Money is a serious thing for him, and so is it, thusDerives his adherence to the principle of "margin of safety".Walter's portfolio is very diverse, with more than 100 of them**. He knows how to spot those that sell for significantly less than the value of private owners. That's all he did. He doesn't care if it's a Monday or if it's January, or if it's an election year. He just said that if a ** is worth $1 and I can buy it for 40 cents, then something good is bound to befall me.
That's what he did, day after day, year after year. He has a lot more ** varieties than I do, and he is not as interested in the nature of the company's business as I am- I don't seem to have much influence on Walter, and that's one of his strengths, and no one has been able to exert enough influence on him.
Case 2: Tom Knapp
The second example is Tom Knapp, my working partner at Graham Newman. Before World War II, he majored in chemistry at Princeton. After returning from the war, he became a vagrant on the beach. One day, he and Dave Dodd were running an evening course on investing in Colombia. When he enrolled in that course, he found himself interested in investing. So, he applied to Columbia Business School, where he earned an MBA. During this time, he attended courses taught by Dodd and Graham. Now, 35 years later, when I was about to ask him for the following information, I met him again at the beach. The difference is,Today he is the owner of the beach
In 1968, Tom Knapp and Ed Adnerson (another Graham student), together with several partners who shared their investment beliefs, founded Tweedy, Browne Partners.
Table 2 shows their investment performance over the yearsThey achieve these results through a very diversified investment strategy, occasionally taking a large stake in a company to gain control of the companyHowever, companies that do not have a controlling stake receive no less return on their investment than the companies they control.
Case 3: A member of a Graham Newman company
Table 3 shows the investment results of the third member, who founded the Buffett Partnership in 1957. One of the most beautiful things he did was to dissolve the company in 1969. After that, Berkshire Hathaway was in a sense just a continuation of the business. It's hard for me to give a single metric to measure Berkshire's performance, but I think it's a satisfactory performance regardless of the metrics used.
Case 4: Sequoia ** Bill Ruane
Table 4 shows the investment record of Bill Rouen, manager of Sequoia Fund
Bill Rouen (hereafter referred to as Bill) was met in 1951 in Graham's investment class. After graduating from Harvard Business School and working on Wall Street, he felt the need to learn more about business, so he enrolled in Graham at Columbia University in 1951.
Between 1951 and 1970. The amount of money that Bill manages is quite small, but the performance is far better than **. When I closed the business of Warren Buffett's partnership, I asked Bill if he wanted to set up a company to manage the money of my partnership shareholders, and he founded Sequoia. The timing of his establishment was very unfavorable. He has been directly involved in both types of markets and has overcome difficulties that have been detrimental to value investors. I am very pleased to see that my co-shareholders have not only continued to entrust him with management, but have also invested more money and have received quite satisfactory returns.
It's not an afterthought, and Bill is the only person I recommend to my partner shareholder. I said at the time that if he could achieve a performance that was 4 percentage points higher than the S&P, it would be enough to stabilize investors. Bill's achievements go far beyond that, and the money he manages gradually increases.
Needless to say, the size of the capital will be a burden on investment performance. It's not that you can't get a better return than your average grade when your bankroll grows, but it gets more difficult. When you're managing a $2 trillion market, which is the equivalent of the total market capitalization of the United States, it's no longer possible for you to achieve better-than-average returns.
I have to emphasize that in the example I gave, they never had the same portfolio in their operations, although they were all looking for differences in value and their respective decisions were very different.
Walter's (case 1) most important holdings are solid companies, such as Hudson Pulp &**Jeddo Highhand Coal and New York Trap Rock Company, whose names are familiar even to those who occasionally read the financial news.
Tweedy Browne (the company in Case 2) chose a more obscure company. Bill, on the other hand, is targeting large corporations. There is very little overlap in their portfolios; Their investment record does not come from a pattern where one person bids and others follow the banker.
Case 5: Munger
The fifth example is the well-known Munger（charlie munger）。Met him in 1960 and suggested that law was a good hobby, but that he could do better.
In the exact opposite of Walter's approach, he formed a partnership with a portfolio of very small **, so his performance fluctuated drastically, but he still invested under the same value discount method. He doesn't care about the ups and downs of performance. As with his track record, he is also a member of the tribe of wisdom that has made outstanding investments.
Case 6: Rick Guerin
Table 6 Investment Performance belongs to a good friend of Charlie's, another non-business graduate who graduated from the University of Southern California with a degree in mathematics and joined IBM after graduation and worked as a salesman. When I found Munger, Munger found him again, and his name was Rick Guerin. From 1965 to 1983, the S&P returned 316, while Rick Green's performance was 22,200.
On a side note, it strikes me as very strange that when you buy something for a dollar for 40 cents, people either accept the idea instantaneously or never accept it. It's like instilling someone with a certain idea, and if that idea doesn't capture them right away, you won't be able to get them to accept it, even if you talk to him for a few more years and show them all kinds of records. It's a very simple concept, but they just can't grasp it.
Someone like Rick Green, who has no formal business education at all, can immediately grasp the value investing method and use it in five minutes. I've never met anyone who would gradually convert to this method after 10 years. It doesn't seem to have anything to do with IQ or academic training. You'll either understand it right away, or you won't for the rest of your life.
Case 7: Stan Perlmeter
The seventh isStan Perrmitstan perlmeter. He was a liberal arts student at the University of Michigan and after graduation became a business partner at Bozell & Jacobs Advertising**. In 1965, he found out that my business was more profitable than his, so he left his advertising career. Similarly, it only took Stan 5 minutes to accept the value investing method.
Stan's holdings are completely different from Walter Schloss's, and he doesn't own what Bill bought, both of which are separate records. However, Stan buys every ** because the value he receives is higher than what he paid. That was his only consideration.
He doesn't care about the quarterly numbers, he doesn't care about the company's profits for the next year, he never cares what day of the week the day of the day to buy ** is, he doesn't care what someone's research report says, and he doesn't care about market movements, volumes, or anything like that. He asks only one question: how much is the business worth?
Case.
Eight, nine: two retirements**
The investment records in Tables 8 and 9 belong to two retirements that I have been involved in**.
The eighth example is the retirement of the Washington Post**. A few years ago, it was managed by a large bank. Later I suggested that if they picked some value-based managers to manage, they would be able to achieve good results.
Their overall results have consistently ranked extremely high among their peers. The Washington Post requires these managers to keep at least 25 percent of their money in bond investments.
I also list their achievements in bond investment in Table 8 to let everyone know that they are not good at bonds. They themselves think so. Even with the 25% (invested in bonds they are not familiar with), their investment performance is still among the best in terms of management.
While the term covered by this record is not very long, it is true that it is the result of many of the investment decisions of the three managers they have hired, although these people have not been known in the past.
The ninth example is the retirement of FMC Corporation**I had never managed this personally, but in 1974 I influenced their decision to pick a value-based manager to manage it.
Until then, they had chosen managers in the same way as other large companies. Since they "pivoted" to value investing, their performance in a Becker survey on retirement** has been ranked first in the rankings of their size**.
In 1983, there were eight managers who had been with the S&P 500 for more than one year, and seven of them had a cumulative performance that outperformed the S&P 500. During the period, FMC**'s actual performance and median performance were 2$4.3 billion, a result that FMC attributes to their new mindset in selecting the best managers.
I don't necessarily pick all of those managers, but they all have one thing in common: they choose what they invest in based on value.
These 9 investment track records are all from "Graham Dodd", and they were not picked out of thousands of people by me after the fact, but I selected them many years ago based on their investment decision philosophy.
I know what kind of education they have and have a first-hand understanding of their intelligence, character, and temperament. Their risk control capabilities are much higher than average, and their performance has been achieved in a relatively weak market situation, and it is extremely important to understand these two points.
Although the styles are different, their main point is the same: they always buy into the business, not just the **. I selected them many years ago based on their investment decision-making structure.
Although their investment styles are very different, they have always adhered to the mentality:The target of the purchase is the enterprise, not the enterprise.
Some of them occasionally buy entire businesses, but often they buy only a small portion of the business. Whether they buy a whole or a part of a business, they have the same attitude. In the portfolio, some people hold dozens of **; Others concentrate on a few**.
In any case, they make a profit by investing based on the difference between a company's intrinsic value and its market price.
I believe that there are many inefficiencies in the market. These investors from Graham Dodd Metropolis have managed to grasp the gap between ** and value.
The "masses" of Wall Street can influence*** When the most emotional, greedy, or frustrated people wantonly drive stock prices, it's hard to argue that the market is a product of reason. In fact, the market is often irrational.
I would like to raise the important relationship between reward and risk. In some cases, there is a positive relationship between reward and risk.
In value investing, the opposite is true. If you buy $1 for 60 cents, you risk more than if you bought for just 40 cents, but the return is still higher.
The greater the potential for return in a value-oriented portfolio, the less risk it has.
You must have the ability to have a rough estimate of the intrinsic value of the business, but you can't give a precise answer. That's what Benjamin Graham meant by having a certain margin of safety.
You don't have to try to buy an $83 million business for $80 millionBut you have to leave room for that. When building a bridge, you have to stick to a load of 30,000 pounds, even though the trucks that pass through the bridge usually weigh up to 10,000 pounds. The same principle applies to investments.
In short, some business-minded people may doubt my motivation for writing this article: that more people convert to value investing will narrow the gap between value and value.
All I can tell you is that this secret has been a secret for 50 years since Benjamin Graham and David Dodd published The Analysis, and in the 35 years that I have been practicing this investment theory, I have not seen value investing become popular.
There seems to be paranoia in human nature, and there is a penchant for making simple things more complicated. In the last 30 years, academia has done anything to completely deviate from the lessons of value investing.
It is likely to continue to be so. Ships will circle the Earth, but the Horizon will still go unimpeded. In the market, there will be a wide difference between ** and value, and those who follow Graham and Dodd's theories will prosper.
Zhang Shupeng and Wang Li compiled nine investment performance records on the Internet).
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