In March 1976 a Mr. Hartman L. Butler, Jr., C.F.A. sat down for an hour long interview with Benjamin Graham in his home in La Jolla, California. Hartman recorded the discussion on his cassette tape recorder, and transcribed it into the following document. There are many great insights from Graham. Here are several of the best parts:
On the GEICO disaster unfolding at the time:
It makes me shudder to think of the amounts of money they were able to lose in one year. Incredible! It is surprising how many of the large companies have managed to turn in losses of $50 million or $100 million in one year, in these last few years. Something unheard of in the old days. You have to be a genius to lose that much money.
On changes in his investment methodology, a subject we cover in detail in Quantitative Value:
I have lost most of the interest I had in the details of security analysis which I devoted myself to so strenuously for many years. I feel that they are relatively unimportant, which, in a sense, has put me opposed to developments in the whole profession. I think we can do it successfully with a few techniques and simple principles. The main point is to have the right general principles and the character to stick to them.
I have a considerable amount of doubt on the question of how successful analysts can be overall when applying these selectivity approaches. The thing that I have been emphasizing in my own work for the last few years has been the group approach. To try to buy groups of stocks that meet some simple criterion for being undervalued-regardless of the industry and with very little attention to the individual company. My recent article on three simple methods applied to common stocks was published in one of your Seminar Proceedings.
I am just finishing a 50-year study-the application of these simple methods to groups of stocks, actually, to all the stocks in the Moody’s Industrial Stock Group. I found the results were very good for 50 years. They certainly did twice as well as the Dow Jones. And so my enthusiasm has been transferred from the selective to the group approach. What I want is an earnings ratio twice as good as the bond interest ratio typically for most years. One can also apply a dividend criterion or an asset value criterion and get good results. My research indicates the best results come from simple earnings criterions.
We looked at the performance of Graham’s simple strategy in Quantitative Value. For more see my overview piece, Examining Benjamin Graham’s Record: Skill Or Luck?
In Quantitative Value we identify several problems with Graham’s simple strategy and examine several other strategies that outperform Graham’s simple strategy.
Hat tip to Tim Melvin @timmelvin