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Learning From the Legends: Benjamin Graham & John Bogle

May 8th marks the 93rd birthday of John Bogle. May 9th marks the 128th birthday of Benjamin Graham. On their birthday week, let us look at some of the investing lessons these legends imparted to the next generation of investors.
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The month of May marks the birthday of two of the most sought after mentors in the Investing world: Benjamin Graham and John Bogle. Benjamin Graham was born on 9th May 1894 in London, UK. John Bogle was born on 8th May 1929 in New Jersey, US. 

Warren Buffett is widely regarded as one of the greatest investors of all time. But if you asked him who he thinks is the greatest investor of all time, he would most likely name his teacher, Benjamin Graham

While on the other hand, the founder of the investments giant ‘The Vanguard Group’, John C. Bogle, opened investment options for many investors. The company became popular because Vanguard's business model allows it to offer meagre fees for its funds. In addition, the corporation has been able to cut its expenses over time due to its size.

Born nearly 35 years apart, both of these legends faced hardships due to the Market Crashes. Benjamin Graham’s family lost their savings during the Bank Panic of 1907. On the other hand, when John Bogle was born in 1929, his family was already in financial difficulties because of the ‘Great Depression.' This might have helped them shape notions about money from an early age. Probably one of the teeny tiny reasons for their love for ‘Investing. 

On their birthday week, let’s get straight to know why they are the legends. We will also look at various investing lessons that they emphasised. 

Who is Benjamin Graham?

Benjamin Graham was a renowned investor whose securities research laid the groundwork for today's in-depth fundamental valuation used by all stock market participants. His best-known book, "The Intelligent Investor," is often called the Bible of value investing and is widely admitted as the foundational work. 

Graham received a scholarship to Columbia University and took a job offer on Wall Street with Newburger, Henderson, and Loeb following graduation. He was already earning around $500,000 per year at the age of 25. Graham lost virtually all of his money in the 1929 stock market crash, but it taught him some crucial lessons about investing. Following the accident, his insights prompted him to collaborate with David Dodd on a research book titled "Security Analysis."

Investing Lessons to Learn from Benjamin Graham

  1. Keep Learning from your Mistakes and Never Give up
    • Graham lost most of his money in the stock market crash of 1929 and the Great Depression that followed. Graham learnt a painful lesson about risk. Still, instead of quitting investing like many others, he wrote Security Analysis, which described his methodologies for analysing and pricing assets.
    • He achieved this by purchasing the stocks of companies whose shares were trading at a large discount to their liquidation value. As a result, Graham is claimed to have averaged roughly a 20% yearly return over his many years of money management, notwithstanding the hardships of the Great Depression.
  2. Gambling and Speculation are not part of Investing
    • Graham's success came when investing in stocks was regarded as nothing more than a risky proposition, but he was able to do so with high returns and low risk.
    • Graham believed that investing should include the assurance of a return on investment capital and a worthwhile return over the inflation rate. This is known as inherent value investing or value investing.
  3. Keeping Downside Risk to a Minimum
    • Graham consistently emphasised the importance of buying investments with a margin of safety and at a discount to their actual or intrinsic worth. This is significant because it enables upside profit as the market revalues the item to its actual value.
    • However, if things don't go as planned and the market takes a turn for the worst, the margin of safety method provides some protection on the downside. In the case of stocks, Graham would consider a company's liquidation value. To mitigate negative risk in real estate, investors could consider land value, for example.
  4. It is important to have a Margin of Safety
    • The basic concept of value investing is to purchase assets at a discount to their true value and keep them until their price rises to their full value, earning a profit on the investment.
    • Graham indicated that his goal was to purchase a dollar's worth of assets for 50 cents, and he was successful in doing so. He had two options for accomplishing this. The use of market psychology was the first method. That is, he takes advantage of the market's fear and greed. The second strategy was to invest by the numbers in order to locate undervalued assets by investing counter-cyclically when the market was down and bargains were plentiful.

Who is John Bogle?

John Clifton Bogle is the most profoundly influential man to come from the world of investment in the last hundred years. He was born in Montclair, New Jersey, to an American family affected hard by the Great Depression. Bogle was one of the smartest thinkers in the American investment management sector by his mid-20s, having studied economics and investing at Princeton University and writing a 130-page thesis on the US mutual fund industry titled The Economic Role of the Investment Company while there.

He was the founder of the Vanguard Group and a key proponent of index investing was a big proponent of index investing. Bogle, sometimes known as "Jack," revolutionised the mutual fund industry by inventing index investing, allowing investors to purchase mutual funds that track the broader market. He did so intending to make investing easier and more affordable for the typical investor.

Investing Lessons to Learn from John Bogle

  1. When Investing, Keep a Check on Emotions
    • "Impulse is your adversary," according to John Bogle, and no investor should allow emotions to enter the picture while investing. "Eliminate emotion from your financial scheme," he says.
    • Maintain logical expectations for future returns and avoid adjusting them in reaction to the market's temporary noise.
  2. Make sure you Stick to your Investment Plan.
    • Bogle counselled his investors to "Stay the Course." It's more damaging to change your strategy at the last minute.
    • He claims that "wise investors will not try to outsmart the market." Instead, "They'll diversify and buy index funds for the long run."
  3. Time is your Best, Ally
    • Bogle always advised people to start investing as soon as possible to be successful. He believed that if you start early enough, your gains will compound over time, and your money will grow exponentially on its own.
    • According to Bogle, even small savings made in one's early twenties can grow into huge sums throughout a lifetime of investing. As a result, investing time in the market is crucial. However, Bogle also argues that instead of trying to time the market, investors should focus on spending time in it.
  4. Cost is a Crucial Factor
    • Investing, according to Bogle, is about more than just risk and reward. When it comes to investing, investors should strike a careful balance between risk, return, and cost, he says, because low expenses allow lower-risk portfolios to deliver more significant returns than higher-risk portfolios.
    • Investors who wish to trade actively or have been persuaded to do so by their brokers should be aware that unproductive market timing is almost unavoidable. Investors commonly bet on sectors when they are hot and against them when they are fantastic in these situations. Furthermore, excessive commissions and fees accumulate over time, lowering investment profits.

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