Benjamin Graham vs Warren Buffett

Benjamin Graham

A share is a claim on assets, valued from the published accounts.

Warren Buffett

A share is a fraction of a business, valued by the cash it will produce.

Benjamin Graham

Risk is overpaying relative to tangible worth, handled by a numeric discount.

Warren Buffett

Risk is permanent impairment of the business, handled by understanding it.

Benjamin Graham

Net current assets, book value and earnings multiples.

Warren Buffett

Discounted future cash, with the discount applied to a durable franchise.

Benjamin Graham

Many small positions, because any one of them may be cheap for a real reason.

Warren Buffett

Few large positions, because good businesses at fair prices are rare.

Benjamin Graham

Wide diversification is a requirement of the method.

Warren Buffett

Diversification is protection against not knowing what you are doing.

Benjamin Graham

Never. Mr Market's quotes are offers to accept or ignore.

Warren Buffett

Never, though holding cash until a price appears is not the same thing.

Benjamin Graham

Largely absent. The method was designed to work without a macro view.

Warren Buffett

Largely absent, and deliberately so.

Benjamin Graham

• Published Security Analysis with David Dodd in 1934, at the lowest point of the Depression and when confidence in equities had collapsed. It mattered because it replaced reputation and tips with a repeatable procedure, and it created security analysis as a discipline rather than a trade.
• Wrote The Intelligent Investor in 1949 for readers who were not professionals. It has stayed continuously in print for more than seventy years, which makes it the route by which most people still encounter the idea that price and value are different things.
• Bought a large stake in the insurer GEICO for the partnership in 1948. The position grew to outweigh everything else the partnership owned combined, and the irony is instructive: his single best result came from a concentrated holding of a growing business, which his own rules would have discouraged.

Warren Buffett

• Ran Buffett Partnership Ltd from 1956 and closed it in 1969 by choice, returning capital because he could no longer find opportunities he understood. Voluntarily shutting a successful fund rather than lowering the standard is rare in the industry, and it established the discipline his later record depended on.
• Bought National Indemnity in 1967, which mattered far more than its size suggested. Insurance premiums are collected before claims are paid, and that pool of money gave Berkshire investable capital no lender could withdraw, turning a stock-picking vehicle into a permanent-capital compounding machine.
• Acquired See's Candies in 1972 at a price well above its book value. It broke the Graham rule he had trained on and worked anyway, which is why he credits it with converting him from buying cheap companies to paying fair prices for durable ones.

Benjamin Graham

• The clearest objection is that his method stopped finding anything. Critics argue that companies trading below net current assets were a product of the Depression and of an era before screening was computerised, and that the supply largely disappeared once everyone could run the filter. Supporters reply that the principle, buying at a discount to a conservative estimate, survives even when that particular screen is empty. The record favours the critics on the specific test and the supporters on the general one: deep bargains of that kind are now rare outside distressed corners, while the underlying logic remains in use.
• His framework struggles with businesses whose value is not on the balance sheet. Critics point out that a company whose main asset is software, a brand or a research pipeline will look expensive on every measure he used, so the method systematically avoids exactly the businesses that have compounded most since. Supporters answer that Graham designed it to avoid unquantifiable judgments on purpose. What followed is that his own best pupils moved on: Buffett has said explicitly that paying up for quality, which Graham resisted, produced most of Berkshire's results.
• Cheapness alone is a well-documented trap. Critics note that a low price often reflects a business in genuine decline, and that a purely statistical approach buys the falling knife along with the bargain. Supporters emphasise that Graham never advocated concentration in such names and insisted on wide diversification for exactly this reason. Later research broadly supports his structure rather than his critics here, since the value effect has generally shown up across baskets of cheap stocks rather than in individual picks.

Warren Buffett

• Technology is the longest-running charge. Critics argued that avoiding an entire sector for decades was not discipline but a refusal to learn, and that the circle of competence had become a justification for standing still. Supporters replied that he sat out the late-1990s boom and therefore also the bust that followed, and that declining to value what you cannot value is the method working. What actually happened complicates both readings: Berkshire eventually made Apple its largest holding, which critics treat as an admission and supporters treat as the circle widening on evidence rather than on enthusiasm.
• Scale is the criticism he makes himself. Critics point out that a company of Berkshire's size cannot buy anything small enough to matter, so the opportunity set has narrowed to a handful of very large deals. Supporters answer that permanent capital and a reputation that brings deals to the door are advantages nobody else has. The record suggests the critics have the better of it: Berkshire's results have moved steadily closer to the broad market as it has grown, and Buffett has told shareholders directly not to expect the early rates again.
• Whether the method transfers is genuinely contested. Critics argue the record rests on insurance float, permanent capital and preferential terms in private deals, none of which an individual can obtain, so studying him teaches habits that cannot be executed. Supporters distinguish the structure from the principles and note that the reasoning about business quality and price survives without the balance sheet. History gives a mixed verdict: investors who took the principles have generally done better than those who tried to replicate the machinery.

Benjamin Graham

Investors who want a rules-based process that does not require forecasting, and who are willing to hold many positions and check them mechanically.

Warren Buffett

Investors willing to do deep qualitative work on a small number of businesses, and temperamentally able to hold them through long periods of nothing happening.