History of Value Investing

The origin of value investing is dated back in the 1920s when Benjamin Graham and David Dodd developed a method to identify undervalued assets. Both started teaching about value investing in the Columbia Business School in New York. They developed the method further and published the book “Security Analysis” in 1934 after the stock market crash on Wall Street followed by the great depression. 

Graham and Dodd reflected the lessons learned from the Great Crash and advised investors to take a different approach than just focusing on earning forecasts but also including a careful valuation of the operational business and the analysis of it’s financial statements. Purchasing assets at a significant discount to its intrinsic value gives the investor the “Margin of safety” were assets are bought below book value e.G. buying the dollar for 50 cent. Their method has been constantly developed further since.

Benjamin Graham published later (1949) another book called “The Intelligent Investor”. This book is more generalised than the previous book “Security Analysis” and was written for the novice investor. Graham explains the psychological impact of “Mr. Market” and how to look for the margin of safety. His investment approach changed and became more diversified. He figured out that buying a group of different undervalued stocks minimses the risk of losses and this approach beat the Dow Jones twice over the last 50 years.

Successful value investors such as Irving Kahn, Walter Schloss, Warren Buffett and Charles Brandes were students of Benjamin Graham. His successor Roger Franklin Murray lectured value investing until 1978 at Columbia. Murray wrote numerous editions of “Security Analysis” and notable students were Mario Gabelli, Glenn Greenberg, Charles Royce, and John Shapiro. Other famous value investors are Charlie Munger, Seth Klarman, Joel Greenblatt, Howard Marks, Edward Lampert and Daniel Loeb.