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An Hour Ben Graham

An Hour Ben Graham

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AN
HOUR
WITHMR.
GRAHAM
by
Hartman
L.
Butler,
Jr.,
C.F.A.
LaJolla,
CaliforniaMarch
6,
1976
lIB:
Mr.
Graham,
I
do
appreciate
so
much
being
able
to
comeand
visit
with
you
this
afternoon.
When
Bob
Milne
learned
that
Mrs.
Butlerand
I
wouldbe
in
LaJolla,
he
suggested
that
I
not
only
visit
with
you
but
also
bring
along
my
cassette
tape
recorder.
Wehave
much
I
would
like
to
cover.
First,could
westartwith
a
topical
question-Government
EmployeesInsurance
Company-with
GEICObeingvery
much
in
the
headlines.
Graham:
Yes,
what
happened
was
theteam
came
into
our
office
and
after
somenegotiating,we
bought
half
the
company
for
$720,000.
It
turned
out
later
that
we
were
worth-the
whole
company--over
a
billion
dollarsin
the
stockmarket.
This
wasa
very
extraordinary
thing.
Butwe
wereforced
by
the
SEC
to
distribute
the
stock
among
our
stockholders
because,according
to
a
technicality
in
the
law,
aninvestment
fund
was
not
allowed
morethan
10
percent
of
an
insurance
company.
Jerry
Newmanand
I
became
active
inthe
conduct
of
GEICO,although
we
both
retired
a
numberof
years
ago.I
am
gladI
am
not
connected
with
it
now
because
of
the
terrific
losses.
lIB:Do
you
think
GEICO
willsurvive?
Graham:
Yes,I
think
it
willsurvive.
There
is
no
basic
reason
whyit
won't
survive,
but
naturally
I
ask
myself
whetherthecompanydid
expandmuch
too
fast
without
taking
into
accountthe
possibilities
of
thesebig
losses.
It
makes
meshudder
to
think
of
the
amounts
of
money
they
were
able
to
lose
inoneyear.
Incredible!
It
issurprising
how
many
of
the
large
companies
have
managed
to
turn
inlosses
of
$50
million
or
$100
million
in
one
year,in
theselast
few
years.
Somethingunheard
of
inthe
old
days.
You
have
to
be
agenius
to
lose
that
much
money.
33
 
HB:
Looking
back
atyourown
lifein
the
investment
field,
what
are
some
of
the
keydevelopments
or
keyhappenings,
would
you
say?
Youwent
to
Wall
Street
in
1914?
Graham:
Well,
the
first
thing
that
happened
was
typical.
Asaspecialfavor,Iwas
paid
$12
a
weekinstead
0
f
$10
to
begin.
The
next
thing
that
happened
wasWorldWarI
broke
out
two
monthslater
and
the
stockexchange
was
closed.
My
salary
was
reduced
to
$10-that
is
one
of
the
things
more
or
less
typical
of
any
young
man's
beginnings.
Thenext
thing
that
wasreally
importantto
me-outside
of
having
made
a
rathercontinuous
success
for
15
years-was
the
market
crash
of
1929.
HB:
Did
you
see
that
coming
at
all-were
you
scared?
Graham:
No.
AllI
knew
was
that
prices
were
too
high.I
stayed
away
from
the
speculativefavorites.IfeltI
had
good
investments.
But
lowed
money,
which
wasa
mistake,
and
I
had
to
sweat
through
the
period1929-1932.
I
didn't
repeat
that
error
after
that.
HB:
Did
anybody
reallysee
this
coming-the
crash
of
1929?Graham:Babson
did,
but
he
started
sellingfive
years
earlier.
HB:
Then
in
1932,
you
began
to
comeback?
Graham:
Well,
we
sweated
through
that
period.
By
1937,we
had
restored
our
financial
position
as
it
wasin
1929.
From
then
on,
we
went
along
pretty
smoothly.
HB:
The
1937-1938
decline,were
you
better
prepared
for
that?
Graham:
Well,
that
led
us
to
makesome
changesin
our
procedures
that
one
of
our
directors
had
suggested
to
us,
which
was
sound,and
we
followed
hisadvice.Wegave
up
certain
things
we
had
been
tryingtodoand
concentrated
moreon
others
that
had
beenmore
consistently
successful.
We
went
along
fine.
In1948,wemade
our
GEIeO
investment
and
from
then
on,
we
seemed
to
be
very
brilliantpeople.
34
 
HB:
What
happened
III
the
only
other
interimbear
market-1940-1941
?
Graham:
Oh,
that
was
only
a
typical
setbackperiod.
We
earned
money
inthoseyears.
HB:
You
earned
moneyafter
WorldWar
II
broke
out?
Graham:
Yes,
wedid.
We
had
no
real
problems
inrunning
our
business.
That's
why
I
kind
of
lostinterest.
We
were
no
longer
verychallenged
after1950.
About
1956,
I
decided
toquit
and
tocome
out
here
to
California
to
live.Ifelt
that
I
had
established
a
way
of
doing
business
to
a
point
where
itno
longer
presentedany
basic
problems
to
be
solved.We
were
going
along
on
what
I
thought
wasa
satisfactory
basis,
andthe
things
that
presented
themselves
weretypicallyrepetitions
of
old
problems
which
I
found
no
special
interest
insolving.
About
SIX
years
later,
we
decided
to
liquidateGraham-Newman
Corporation-to
endit
primarilybecause
the
succession
ofmanagement
had
not
been
satisfactorilyestablished.
We
felt
we
had
nothing
special
tolook
forward
to
that
interested
us.We
could
have
builtup
an
enormous
business
had
we
wantedto,
but
welimited
ourselves
to
a
maximum
of
$15
million
ofcapital-only
a
drop
in
thebucket
thesedays.
The
question
of
whether
we
could
earn
themaximum
percentage
per
year
was
what
interested
us.
It
was
not
thequestion
of
total
sums,
but
annual
rates
of
return
that
we
were
able
to
accomplish.
HB:When
did
you
decide
to
write
your
classic
text,
SecurityAnalysis?
Graham:
What
happened
was
that
in
about
1925,
I
thought
that
I
knew
enough
about
Wall
Street
after
11
years
to
write
a
bookabout
it.
But
fortunately,
I
had
the
inspirationinstead
to
learn
more
on
thesubject
before
I
wrote
the
book,
soI
decided
I
would
start
teaching
if
I
could.
I
became
a
Lecturer
at
the
Columbia
School
of
Business
fortheextension
courses.
In1928,
we
had
a
courseinsecurity
analysis
and
finance--I
think
it
wascalled
Investments-and
I
had
150
students.
That
was
the
time
Wall
Street
wasreally
booming.
35

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