Jason Zweig - Benjamin Graham, Building a Profession: The Early Writings of the Father of Security Analysis

BUILDING A PROFESSION

CLASSIC WRITINGS OF THE
FATHER OF SECURITY ANALYSIS

JASON ZWEIG
RODNEY N. SULLIVAN, CFA

Editors

Copyright 2010 by CFA Institute. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

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Part 1
The foundations of the Profession

Part 2
Defining the new Profession

Part 3
Broadening the Profession

Part 4
The voice of the Profession

The purpose of this book is to collect, for the first time in a single volume, Grahams classic shorter writings on financial analysis. The book also serves as a companion reader to the commemorative sixth edition of Graham and Dodds Security Analysis, published in 2009.

Through the development of Grahams thinking from 1932 through 1976, we can trace the evolution of financial analysis from a cottage industry to a full-fledged profession. Graham was a voice in the wilderness crying out for shareholders rights. He was a prophet who warned of the hazards of bull markets and proclaimed the opportunities created by bear markets. He was a pragmatic tinkerer seeking new methods of valuation. He was a profound thinker determined to place security analysis on the sound foundation of the scientific method. And he was, in his business life, a model of honesty and integrity, consistently placing the interests of his clients ahead of his own.

These essays, then, are not merely the story of how Graham founded the profession of security analysis. They also show what he felt the field should take as its central priorities.

Every decade or so, critics have fired their peashooters at Graham, carping that he is out of touch, obsolete, irrelevant. What the nitpickers always fail to see is that the passage of time has the same effect on Graham as it has on Shakespeare or Galileo or Lincoln: The unfolding years provide ever more evidence of his importance. No one else, before or since, has surpassed Grahams intellectual firepower and common sense, his literary mastery, his psychological insights, and his dedication to the dignity of security analysis as a profession. He matters more today than ever before. Can anyone possibly doubt that the Internet bubble and the credit crisis would have been less devastating if more investors had taken Graham to heart?

There are few things we can be certain of in the world of financial analysis. This is one: A generation from now, and in all the decades to come, Benjamin Graham will be regarded as an even more indispensable guide than he is today.

Read on, and see why.

Jason Zweig

More than thirty years after his death and nearly sixty-five years after he put forth the radical proposition that financial analysis ought to be both a science and a profession, Benjamin Graham still stands with the sun at his back. He is a towering example of Ralph Waldo Emersons pronouncement that an institution is the lengthened shadow of one man. The nearly 90,000 holders of the Chartered Financial Analyst designation in more than 135 countries and territories and more than 200,000 students seeking formal membership in the profession are living testimony to the power of Grahams ideas and the colossal length of his shadow.

Emerson understood that great institutions are created by lone crusadersthose with the brilliance to see the same old world in a radically new light, with the vision to build castles in the air, and with the stubbornness to build a foundation under those castles, brick by brick.

If Benjamin Graham had not founded the profession of financial analysis, someone else might have done so. But we should not be too sure. At the outset, Lucien Hooper, one of the most influential analysts in the United States, protested that Grahams proposal was unnecessary formalism that would do nothing to make analysts more ethical, intellectually honest, or competent. The first Chartered Financial Analyst designation was not awarded until 1963more than two decades after Graham had proposed a formal standard. Think of seeing your newborn child all the way through to graduation from college, and you will have some idea of how long and patiently Graham nurtured the idea that financial analysis should be formalized as a profession.