Warren Buffett Story [Part 12] The Father of Value Investing

In the last article, we saw that Warren Buffett had already studied at two universities, but he still decided to apply to Harvard Business School. Let's continue to learn through his journey!

In the summer of 1950, Warren Buffett took the Harvard Business School entrance exam and had a direct interview with the head of the admissions team in Chicago. Warren Buffett was declined by Harvard Business School after a brief interview that lasted only ten minutes.

But Buffett considered this as the best thing that happened to him. He was reminded about the the well-known classic book of the father of modern value investing, Benjamin Graham, "The Intelligent Investor".

It was so inspiring that he made the decision to enroll in Columbia University's School of Business, where Graham teaches. This time, he successfully received a letter of admission.

We all know that Warren Buffett is a famous bookworm, especially for financial investment-related books. He has read hundreds of books, so at the beginning of his professional financial knowledge has been no less than a professional fund manager. What he lacked was the need for an experienced director to guide him and give the core spiritual concept of corporate stocks.

Graham's investment theory is based on the recognition of the "intrinsic value" of a company. Only then can we buy at a price lower than the "intrinsic value", thus creating a "value investment".

The theory is that if we should invest in the stock market not according to the emotions of hope and fear, but rather focus on the hidden value of the business behind the company's stock, buy it at a relatively low price which can result in minimizing the investment risk.

In 1934, when the shadow of the Great Panic was still fresh in people's minds, Graham met with David Todd, a Columbia University classmate, to discuss the value of stocks. David Todd, a fellow student at Columbia University, co-authored the book Security Analysis, in which he presented the Graham-Todd theory with value investing as its core. At that time, the entire market was in its heyday with a speculative mindset, and since no one had advocated studying the value of a company's stock before then, this theory could be considered an epoch-making publication at that time. 

Later, in 1942, "Intelligent Stock Investor" updated the content of "Securities Analysis" into a simple investment guide for general investors, and used a large number of real-life examples to explain and illustrate the core issues of investment in a simple and concise manner. 

Here's what Graham says in The Intelligent Stock Investor: "Let's say you become a partner in a non-public enterprise by contributing $1,000 to the enterprise. And there is a "Mr. Market" in the partnership who is so enthusiastic that he will come to you every day and tell you what the current value of your stock is. And he will come to you and ask you if you want to buy more shares? Do you want to sell some of your shares? Most of the time his ideas sound normal, but many times you can feel Mr. Market's enthusiasm or fear explode, and in that case, the value of the stock he is considering at the time seems a bit silly to us.

In conclusion, what Graham wants all investors to learn is that a "Mr. Market" who thinks and feels one way can't really know the true price of a stock because a real investor doesn't care about "Mr. Market". People who will always share their happiness and worries with "Mr. Market" are not investors, but speculators! 

So how do you define an investor and a speculator? Let's continue to learn "Value Investing" from Graham in the next article! Stay tuned! 

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