Warren Buffett

CHAPTER 3The Evolution of Value Investing

Soon after joining Newburger, Henderson & Loeb in 1914, Ben Graham grew restless. He had started his new job as a clerk, but in short order he was moved into the bond department and trained to be a salesman. But what he really wanted to do was write, not sell bonds. Despite lacking any formal training in economics or accounting, Graham began researching railroad companies, specifically railroad bonds, on his own and writing research reports.¹

One of his reports, on the Missouri Pacific Railroad, caught the eye of a partner at J.S. Bache and Company, a respectable NYSE firm. He was quickly offered a job as a statistician with a 50 percent increase in salary. Graham let Newburger know that although he felt a sense of loyalty to the firm, he was not motivated to be a salesman. Newburger countered with its own pay raise. It was not quite 50 percent but it included a sweetener: the opportunity for Graham to start his own statistical department. He decided to stay and pursue his writing at the same time.

At that time, serious investment capital was limited to buying bonds. Common stock investing was thought to be a speculative game played not on the basis of financial data but insider information. Nonetheless, Graham began writing articles for The Magazine of Wall Street, a newsletter with investment tips for stocks as well as bonds. He soon developed a following. He next published a pamphlet titled “Lessons for Investors.” In it he argued ...