This is a series on Benjamin Graham’s disciples (direct students in this case), their association with their great master, their investment philosophy, and of course their performance.
This is basically a beginning of one of our projects, psychological profiling of the legendary value investors, starting with Ben’s disciple with an objective to understand them better from the perspective of their psychological makeup since we believe cognitive psychology or dealing with cognitive biases, not stratospheric IQ give investors an edge over others in investment. The sole purpose of this project is that how investors can takeaway the most out of Graham’s disciples.
So far I came up with a list of disciples, mostly from Warren’s article - "The Superinvestors of Graham-and-Doddsville." However, my list should not be considered as a complete one since they are not the only students Ben Graham taught at Columbia and New York Institute of Finance and I would appreciate if you let me know about others. I have arranged them alphabetically: Charles H. Brandes, Ed Anderson, Irving Kahn, Robert H. Heilbrunn, Tom Knapp, Walter J. Schloss, Warren Buffett and William J. Ruane.
I think the following except from Warren’s article - "The Superinvestors of Graham-and-Doddsville" better justifies the relationship between Ben Graham and his disciples.
"In this group of successful investors that I want to consider, there has been a common intellectual patriarch, Ben Graham. But the children who left the house of this intellectual patriarch have called their "flips" in very different ways. They have gone to different places and bought and sold different stocks and companies, yet they have had a combined record that simply cannot be explained by the fact that they are all calling flips identically because a leader is signaling the calls for them to make. The patriarch has merely set forth the intellectual theory for making coin-calling decisions, but each student has decided on his own manner of applying the theory."
For our research purpose, we will rely mostly on secondary resources available from these legendary value investors’ writings, or writings by others on them or from their company websites.
In this part of the series, we will talk about Charles Brandes, his association with Ben Graham, his investment philosophy, and performance.
1. Profile
Charles Brandes is one the most widely followed global value investors today, manage some $32.9 billion assets at Brandes Investment Partners, a San Diego, CA based investment firm started in 1974. Charles stands on 331 on Forbes 400 list with a net worth of $1.3 billion.
Brandes majored in economics from Bucknell University in 1965. He did graduates studies at San Diego State University. He is also a CFA charter holder.
Brandes enjoys studying and understanding worldwide economic growth and the lack thereof, and is a fan of Elton John, who he had perform at his 2006 wedding to his wife, Tanya. Brandes also enjoys playing soccer and tennis in his spare time, and is an avid equestrian. Through his Tanya & Charles Brandes Foundation, Brandes supports the San Diego Symphony and Elton John's Aids Foundation.
2. Association with Ben Graham
Charles company website nicely portray how he came to know Benjamin Graham.
While taking a turn managing the front desk of a small brokerage firm in La Jolla, California, a young Charles Brandes met a professorial looking gentleman interested in purchasing shares of National Presto. As they spoke Charles began to recognize the man; it was Benjamin Graham, the father of value investing and mentor to Warren Buffett.
His conversations and correspondences with Graham after that chance meeting solidified Charles’ belief that to be a true value investor he would have to free himself from the pursuit of short-term profit making and insulate himself from the widespread “hot dot” mentality.
The website has a nice video presentation on that:
http://az30169.vo.msecnd.net/history1/Default.html
3. Investment Philosophy
Brandes strictly follows Graham and Dodd principles as outlined in the classics - Security Analysis and The Intelligent Investor. A stickler for due diligence, Brandes believes in painstaking financial analysis to find companies with high intrinsic values trading at discounted stock prices.
Like many other value-oriented firms, Charles Brandes Investment Partners has disclosed their investment strategy or philosophy:
Brandes Investment Partners® is a bottom-up, Graham & Dodd, value-oriented, equity and fixed income manager. In short, the firm believes that a strategy of buying businesses at a discount to the firm’s estimate of their true value has the potential to produce competitive long-term results.
Brandes Investment Partners believes that a security’s price and its intrinsic value often detach from one another in the short term. The firm’s approach is to view a security as a small piece of a business that is for sale. Thus the firm focuses on the fundamental characteristics of a company in order to develop an estimate of its intrinsic value. Because of the volatile nature of the overall market – where sentiment can shift rapidly between sweeping optimism and overwhelming uncertainty – prices of stocks tend to fluctuate more than the intrinsic values of the companies they represent. By choosing stocks that are selling at a discount to the firm’s estimates of their intrinsic business values, the firm seeks to establish a margin of safety and an opportunity for competitive performance. This combination of rational fundamental analysis and the discipline to seek to take advantage of market price irrationality enables the firm to target competitive long-term results.
Besides managing money, Charles has commissioned a study to investigate the "Falling Knives" strategy, the investment axiom that catching falling knives (a stock whose price has been dropping precipitously) is like catching falling money (likely to lead to losses). Researching 1,000 companies between 1986 and 2002 whose price had fallen 60% over a twelve month period, the study found that within three years of the decline 13% of the companies went bankrupt, but despite this that the portfolio as a whole gained in value by 18% over three years. Charles has also published a book on value investing - Value Investing Today (McGraw-Hill, ISBN 0071417389).
4. Investment Performance
As of 2007, Brandes' U.S. Value Equity fund has beaten the S&P 500 index for the past five, 10 and 15 years. According to the book Investment Leadership, Brandes' Global equity fund had an average return of 19.21% over the prior 20 years.
Charles manages both equity- and fixed income portfolio styles at Brandes Investment Partners. The following table summarizes the performances of his equity-styles.
Source: Compiled from http://www.brandes.com/Inv/Pages/Performance.aspx
Next: Ben Graham's Disciple: Edward L. Anderson
This is basically a beginning of one of our projects, psychological profiling of the legendary value investors, starting with Ben’s disciple with an objective to understand them better from the perspective of their psychological makeup since we believe cognitive psychology or dealing with cognitive biases, not stratospheric IQ give investors an edge over others in investment. The sole purpose of this project is that how investors can takeaway the most out of Graham’s disciples.
So far I came up with a list of disciples, mostly from Warren’s article - "The Superinvestors of Graham-and-Doddsville." However, my list should not be considered as a complete one since they are not the only students Ben Graham taught at Columbia and New York Institute of Finance and I would appreciate if you let me know about others. I have arranged them alphabetically: Charles H. Brandes, Ed Anderson, Irving Kahn, Robert H. Heilbrunn, Tom Knapp, Walter J. Schloss, Warren Buffett and William J. Ruane.
I think the following except from Warren’s article - "The Superinvestors of Graham-and-Doddsville" better justifies the relationship between Ben Graham and his disciples.
"In this group of successful investors that I want to consider, there has been a common intellectual patriarch, Ben Graham. But the children who left the house of this intellectual patriarch have called their "flips" in very different ways. They have gone to different places and bought and sold different stocks and companies, yet they have had a combined record that simply cannot be explained by the fact that they are all calling flips identically because a leader is signaling the calls for them to make. The patriarch has merely set forth the intellectual theory for making coin-calling decisions, but each student has decided on his own manner of applying the theory."
For our research purpose, we will rely mostly on secondary resources available from these legendary value investors’ writings, or writings by others on them or from their company websites.
In this part of the series, we will talk about Charles Brandes, his association with Ben Graham, his investment philosophy, and performance.
1. Profile
Charles Brandes is one the most widely followed global value investors today, manage some $32.9 billion assets at Brandes Investment Partners, a San Diego, CA based investment firm started in 1974. Charles stands on 331 on Forbes 400 list with a net worth of $1.3 billion.
Brandes majored in economics from Bucknell University in 1965. He did graduates studies at San Diego State University. He is also a CFA charter holder.
Brandes enjoys studying and understanding worldwide economic growth and the lack thereof, and is a fan of Elton John, who he had perform at his 2006 wedding to his wife, Tanya. Brandes also enjoys playing soccer and tennis in his spare time, and is an avid equestrian. Through his Tanya & Charles Brandes Foundation, Brandes supports the San Diego Symphony and Elton John's Aids Foundation.
2. Association with Ben Graham
Charles company website nicely portray how he came to know Benjamin Graham.
While taking a turn managing the front desk of a small brokerage firm in La Jolla, California, a young Charles Brandes met a professorial looking gentleman interested in purchasing shares of National Presto. As they spoke Charles began to recognize the man; it was Benjamin Graham, the father of value investing and mentor to Warren Buffett.
His conversations and correspondences with Graham after that chance meeting solidified Charles’ belief that to be a true value investor he would have to free himself from the pursuit of short-term profit making and insulate himself from the widespread “hot dot” mentality.
The website has a nice video presentation on that:
http://az30169.vo.msecnd.net/history1/Default.html
3. Investment Philosophy
Brandes strictly follows Graham and Dodd principles as outlined in the classics - Security Analysis and The Intelligent Investor. A stickler for due diligence, Brandes believes in painstaking financial analysis to find companies with high intrinsic values trading at discounted stock prices.
Like many other value-oriented firms, Charles Brandes Investment Partners has disclosed their investment strategy or philosophy:
Brandes Investment Partners® is a bottom-up, Graham & Dodd, value-oriented, equity and fixed income manager. In short, the firm believes that a strategy of buying businesses at a discount to the firm’s estimate of their true value has the potential to produce competitive long-term results.
Brandes Investment Partners believes that a security’s price and its intrinsic value often detach from one another in the short term. The firm’s approach is to view a security as a small piece of a business that is for sale. Thus the firm focuses on the fundamental characteristics of a company in order to develop an estimate of its intrinsic value. Because of the volatile nature of the overall market – where sentiment can shift rapidly between sweeping optimism and overwhelming uncertainty – prices of stocks tend to fluctuate more than the intrinsic values of the companies they represent. By choosing stocks that are selling at a discount to the firm’s estimates of their intrinsic business values, the firm seeks to establish a margin of safety and an opportunity for competitive performance. This combination of rational fundamental analysis and the discipline to seek to take advantage of market price irrationality enables the firm to target competitive long-term results.
Besides managing money, Charles has commissioned a study to investigate the "Falling Knives" strategy, the investment axiom that catching falling knives (a stock whose price has been dropping precipitously) is like catching falling money (likely to lead to losses). Researching 1,000 companies between 1986 and 2002 whose price had fallen 60% over a twelve month period, the study found that within three years of the decline 13% of the companies went bankrupt, but despite this that the portfolio as a whole gained in value by 18% over three years. Charles has also published a book on value investing - Value Investing Today (McGraw-Hill, ISBN 0071417389).
4. Investment Performance
As of 2007, Brandes' U.S. Value Equity fund has beaten the S&P 500 index for the past five, 10 and 15 years. According to the book Investment Leadership, Brandes' Global equity fund had an average return of 19.21% over the prior 20 years.
Charles manages both equity- and fixed income portfolio styles at Brandes Investment Partners. The following table summarizes the performances of his equity-styles.
| Sl. No | Portfolio Style | Description | Annualized Performance (Net) | ||
| Since Inception or Longest Period | Primary Benchmark | Relative Performance | |||
| 1 | Emerging Markets Equity | Stocks of companies in emerging countries | 8.35% | 6.29% | 2.06% |
| 2 | European Equity | Stocks of companies in European countries | 8.48 | 6.20 | 2.28 |
| 3 | Global Balanced | Mix of global stocks and bonds | 7.60 | 6.37 | 1.23 |
| 4 | Global Equity | Stocks of U.S. & non-U.S. companies | 12.40 | 9.24 | 3.16 |
| 5 | Global Mid Cap Equity | Stocks of mid-sized U.S. and Non-U.S. companies | 3.85 | 6.14 | -2.29 |
| 6 | Global Small Cap Equity | Stocks of smaller U.S. and Non-U.S. companies | 6.00 | 6.26 | -0.26 |
| 7 | International Equity | Stocks of non-U.S. companies | 9.57 | 4.56 | 5.01 |
| 8 | International Mid Cap Equity | Stocks of mid-sized non-U.S. companies | 5.61 | 5.93 | -0.32 |
| 9 | International Small Cap Equity | Stocks of smaller non-U.S. companies | 7.84 | 5.87 | 1.97 |
| 10 | U.S. Mid Cap Value Equity | Stocks of mid-sized U.S. companies | 3.40 | 7.05 | -3.65 |
| 11 | U.S. Small Cap Value Equity | Stocks of smaller U.S. companies | 3.07 | 4.84 | -1.77 |
| 12 | U.S. Value Equity | Stocks of U.S. companies | 6.91 | 7.81 | -0.90 |
Next: Ben Graham's Disciple: Edward L. Anderson
