Benjamin Graham - 'The Memoirs of the Dean of Wall Street'

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Jose Vasquez
Jun 20, 2012
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This is the latest book I have finished, written by the Dean himself. Faithful to the title it shows in a nonlinear fashion several episodes of his life. He was a well-off kid in his early years, but after his father died he lived through some economic hardships and had to work and study simultaneously. At that time there was no TV and he had lots of time to devour books, mostly classics. Being intelligent and having a very good memory and literary interests, he basically taught himself several languages in order to read the original versions. He taught himself Greek, Latin and French; he also spoke German and Spanish good enough to translate a famous Spanish book.

Graham did not have any formal training in economics since most of the courses he took were in humanities. Having had during his youth financial problems he felt driven to make money and he wanted to help his family, especially his mother. So when he was recommended by a teacher to work in Wall Street as a bond analyst, he immediately took the job.

At that time stocks were considered to be for gamblers. It is interesting to see that even though he is famous for being the father of value investing he wrote that he does not consider knowledge of it made him earn much. Actually, he made most money in other things like Geico, the insurer, at prices not considered extremely low. He also specialized in hedges like buying convertible bonds and at the same time shorted the underlying stock in order to have a hedged trades. Hedges played out quite well until the 1929 crash came and he covered most of the short stocks at an initial profit without closing the convertible bonds at the same time. That had bad consequences since the stock market fell for years and being more than 100% leveraged he accumulated 80% of losses.

He was quite depressed at the time but he made it all back after some years. He once speculated with IPOs of almost unknown companies, which is something he did exceptionally. He made money the first two times but had very big losses the third time, also with much larger amounts of other peoples money.

Other times he made money were by being an activist: by buying a stock in a company that had lots of money in bonds and pushing the management to return the money to the shareholders. He found the companies by gathering information from different sources at a time where very little information was disclosed but where a lot of it was possible to get if you had the drive and time to ask for it.

It is impressive to see how honest he was with himself. When you read the autobiographical book it gives another image than when you read "Security Analysis." In "Security Analysis" it looks like a god is writing and the message he sends is strong. On the other hand when you read his memoirs you see that he is human and that he deviated at times from his own principles.

One thing that is clear is that he could invest unemotionally, hold on to losses without panicking or caring much about it and selecting investments in cold blood, mostly when it was clearly an opportunity. He did not care much about money; he cared more about other things, especially cultural things like reading, the theater and traveling. His lack of interest in money is the reason his partner Newman made more money than he did, he even said that Newman was much more involved in business than himself.

Another thing that struck me is that not a word was mentioned about Warren Buffett . On the other hand, Buffett mentions Graham lots of times. Graham was impressed by few persons in his life. One of them was Bernard Baruch, even though he did not apparently like him since he thought that all his actions had a financial and not a human purpose and that even his philanthropic deeds were done in order to increase his personal fame.

In conclusion the book was great, a rare example of a great investor writing about his life. You understand a lot more about Graham after reading it and it gives good insights on how to be a better investor. It shows how complete his life was. It talks about his travels, lovers, wives, children, about the theater screenplays he wrote and his writing interest that pushed him to write "Security Analysis" and the "Intelligent Investor." He talks about the books he read, his other work as a tax consultant and an expert at valuing companies. He describes the people he met, his economic theory about making a currency not based on gold but on commodities.

In summary, it shows that he was quite a normal person with much less material interests than most people. He actually seems to have made money because he worked in that environment and wanted to have a well-off life after having had financial troubles. What he enjoyed the most in life were simple things that basically had no cost at all, that's why he recommended to his grand children, on his 80th birthday speech, to follow a cultural life.


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