Warren Buffett Graham And Doddsville Lecture - Business Insider

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MYLES UDLAND
AUG. 15, 2014, 5:05 PM

REUTERS

Warren Buffett.
In May 1984, Warren Buffett laid out everything you need to know about his investing
philosophy.
In a speech at Columbia Business School, later adapted into an essay, Buffett introduced what he
called, "The Superinvestors of Graham-and-Doddsville."

Buffett writes:
"The common intellectual theme of the investors from Graham-and-Doddsville
is this: they search for discrepancies between the value of a business and
the price of small pieces of that business in that market."
And that's pretty much it. Buffett doesn't think about buying a stock; he thinks about buying a
business.
The name "Graham-and-Doddsville" comes from Benjamin Graham whom Buffett studied

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under at Columbia and Dave

Dodd, with whom
Graham literally wrote the book
on security analysis.
In Buffett's essay, he asks readers to
consider a group of investors who
outperformed the S&P 500 year in
and year out.

"In this group of successful

investors that I want to consider,"
Buffett writes, "there has been a
common intellectual patriarch,
Ben Graham ... They have gone to
different places and bought and
sold different stocks and
companies, yet they have a
combined record that simply can't
be explained by random chance."
Buffett explains that the investors
of Graham-and-Doddsville don't
care when they buy stocks, or
worry about a stock's beta or the
"covariance in returns among
securities." He says these
investors are businessmen
buying pieces of businesses,
not traders buying stocks.

AP

Benjamin Graham.

And the strategy seems to be working out OK: On Thursday, Class A shares of Buffett's Berkshire
Hathaway eclipsed $200,000 per share for the first time, and $1,000 invested with Buffett in
1984 would've been worth $155,301.
And since 1969, the book value of Berkshire Hathaway which Buffett acquired in 1964 has
beaten the S&P 500 43 out of 44 years on a five-year rolling basis. Said more simply, the relative
value of Berkshire Hathaway shares have been worth more than the S&P 500 collectively every
year but one.
Not to mention that Buffett's personal wealth is estimated by Forbes to be more than $66 billion.
In July, we featured a chapter from Cullen Roche's new book, "Pragmatic Capitalism," which
debunked the myth that "you too" can be like Buffett.
You can't, of course. But Roche's point isn't that Buffett's ideas about investing aren't sound, just
misunderstood.
Many think Buffett was a simple "buy and hold" stock investor, but his investing is about way
more than that or way less, depending on how you look at it.
Buffett concludes his essay by writing that some may wonder why he is giving away this basic
investment philosophy of a number of investors who have outperformed the market.
Isn't he just giving away the secret?
"I can only tell you that the secret has been out for 50 years," Buffett writes, "...yet I have
seen no trend toward value investing in the 35 years I've practiced it. There seems to be
some perverse human characteristic that likes to make easy things difficult. The
academic world, if anything, has actually backed away from the teaching of value investing
over the last 30 years. It's likely to stay that way. Ships will sail around the world but the Flat
Earth Society will flourish. There will continue to be wide discrepancies between
price and value in the marketplace, and those who read their Graham & Dodd
will continue to prosper."

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Indeed, all of the research continues to show that the vast majority of professional and
retail investors are underperforming.
The whole essay is embedded below.
The Superinvestors Of Graham-and-Doddsville

SHOW ME MORE LIKE THE SUPERINVESTORS OF GRAHAM-AND-DODDSVILLE

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