Warren Buffett

CHAPTER 4Business‐Driven Investing

“Investment is most intelligent when it is most businesslike.”¹

That's Ben Graham in his landmark book, The Intelligent Investor.

“These are the nine most important words ever written about investing.”²

That's Warren Buffett, Graham's most famous pupil.

Although we have moved past Graham's methods for valuing stocks, his counsel for how to think about stocks as businesses is both enduring and invaluable.

As far back as 1917, when Graham wrote his first article for The Magazine of Wall Street, he held a steadfast belief that there was a better way to think about investing, and it was not speculating about what the next fellow was going to do with his shares. At the heart of Ben Graham's approach was an appreciation that, in the world of investing, the temperament of a businessperson was far superior to that of a speculator. Having said this, he was dismayed to “see how many capable businessmen try to operate in Wall Street with complete disregard of all sound principles through which they have gained success in their own undertakings.”³

Graham believed that someone who purchased common shares in a company had earned “double status” and that it was their choice to decide which action to take. They could view themselves as a “minority stockholder in a business” whose fortune was “dependent on the profits of the enterprise or on a change in the underlying value of its assets.” Or they could see themselves holding “a piece of paper, an engraved ...