A CURIOUS CASE OF BENJAMIN GRAHAM

Benjamin Graham is the father of security analysis. He transformed the practice of financial analysis from trade to science. He wrote two master pieces namely Security Analysis and the Intelligent Investor. He has given some extremely good concepts on investing. Let us discover some of them.
1. Mr Market.
Mr. Market has a fictitious character created by Ben graham to explain market behaviour. The stock market should be viewed as an emotionally disturbed business partner. Graham advised investors to look at market fluctuations from the Mr. Market’ perspective. He stated that the investors needed to imagine that they were in a partnership with a highly accommodating fellow named Mr. Market. Mr Market had the peculiar nature of being over optimistic or being over pessimistic on any given day. On a day when he was over optimistic he would ask for any price to get your share and when he was over pessimistic he was most likely to dump his shares on you at any price that you demand. Another characteristic of Mr. Market was that he doesn’t mind being ignored. If you don’t accept his offer today, he will come again tomorrow with a new quote. Graham advised investors to take advantage of Mr. Market but also warned not to be influenced or take guidance from him.
Mr. Market shows up his face each day offering a price at which he will buy your share of the business or sell your share. No matter how wild his offer is or how often your reject it, Mr Market returns with a new offer the next day and each day thereafter. It’s up to you to consider or reject. Buffet says the moral of the story: Mr. Market is your servant not your guide.

2. Margin of Safety
Benjamin Graham gets the entire credit for introducing the concept of margin of safety. In all his investment he searched for the margin of safety that made an investment acceptable to him. He once remarked, “Confirmed with a challenge to distil the secret of sound investment into three words we venture with the motto “Margin of safety”.

3. Stocks are businesses.
Stock is not just a piece of paper for Graham. It is a part ownership of the business. Graham went to great lengths to educate investors about informed investing. He emphasized investors to look at investing as buying piece of business rather than merely holding a stock. He wrote “evidently stockholders have forgotten more than to look at balance sheets. They have forgotten also that they are owners of the business and not merely owns of quotation on the stock ticker. What stock holders need today is not to became balance sheet conscious alone, but more than that to become ownership conscious”. Value investors regard securities not as just speculative instruments but as fractional ownership in the underlying business.

4. Importance of dividend
Graham was fond of cash rich and debt free companies to invest. He was incensed by cash-rich corporations that did nothing but stash excess cash in their accounts. He believed that if corporations could justifiably utilise retained earnings then it was acceptable but if they were merely holding excess and unutilised cash in the bank, then it amounted to a loss of opportunities for stock holders. He stated that cash-rich corporations need to distribute their cash to shareholders, who then had the option of re-investing the dividends in the company or use it in any other way they feel better.