Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations

Chapter 2Contrarians at the GateThe Dean of Wall Street on Liquidations, Activism, and the Great Mean-Reverting Mystery of Value Investment

Chairman: “. . . One other question and I will desist. When you find a special situation and you decide, just for illustration, that you can buy for 10 and it is worth 30, and you take a position, and then you cannot realize it until a lot of other people decide it is worth 30, how is that process brought about—by advertising, or what happens?”

Graham: “That is one of the mysteries of our business, and it is a mystery to me as well as to everybody else. We know from experience that eventually the market catches up with value. It realizes it in one way or another.”

—Benjamin Graham, “Stock Market Study. Hearings Before The Committee on Banking and Currency, United States Senate, Eighty-Fourth Congress, First Session on Factors Affecting the Buying and Selling of Equity Securities.” (March 3, 1955)¹

In 1927, 31-year-old Benjamin Graham started teaching a night class at Columbia University called “Security Analysis.” Graham discussed in the lectures a new method he had developed for analyzing securities. The young lecturer, who had turned down offers to undertake doctorates in the philosophy, mathematics, and English departments when he graduated from there 13 years earlier, proposed the radical idea that a stock’s price and its intrinsic value were distinct quantities. A stock’s intrinsic value, he taught, could be deduced through careful ...