Benjamin Graham and David Dodd Value Investing Criteria

It is remarkable how Graham/Dodd is almost universally respected, and yet at the same time, ignored in practice by the majority of market participants. The simple idea of investing in a “business-like” fashion, never overpaying for growth, is common sense – yet “the crowd” has never chosen logic over emotion or tradition. Of the millions of shares that change hands around the world every day, how much of the volume is based on decisions with Graham-like principles? I’d suggest close to 0%. Hence why it still works, I’d imagine.

My browser is currently clogged with around 45 different books, articles, lectures and interviews about Graham from over the years! The articles are a welcome change from the more stuffy writing style in the textbooks, and seem to be the source of relatively rare insights, removed from the clichés and stereotypes that used to put me off this style of investment.

The concept of “7 acceptable P/E for no growth when interest rates are high, 10 P/E for no growth when rates are low” makes a lot of sense. Another simple idea, “divide everything by 100 and ask yourself how you’d value it if it was your own small business that you owned entirely” and it’s clear to see the side of Graham that came out in Buffett.

An investor I know consistently picked some great growing businesses over the years, at the right prices, with good balance sheets – and when the market was in agreement. His real winners didn’t just show price momentum though – the price was reflecting (and often understating) the momentum of the company’s operating performance.