The Last Lessons from Benjamin Graham’s Final Interview
In his final interview, Benjamin Graham critiqued the Efficient Market Hypothesis and why invest in index fund is a good strategy
Ben Graham laid the foundation for modern investment practices with his groundbreaking works The Intelligent Investor and Security Analysis. His principles have guided countless investors, including Warren Buffett, who credits Graham as his mentor.
On March 6, 1976, just a few months before his passing, The Father of Value Investing sat down for an interview with Hartman L. Butler, Jr., C.F.A., in La Jolla, California. Ben reflected on his career, the evolution of his investing philosophy, and his candid views on Wall Street.
TL; DR
Graham advocated for a “group approach” to investing, focusing on buying groups of undervalued stocks using simple criteria like earnings yield and asset values. This method consistently outperformed complex strategies in his research.
Ben critiqued the Efficient Market Hypothesis, arguing that stock prices don’t always reflect intrinsic value. He believed inefficiencies in the market create opportunities for disciplined, value-driven investors.
The father of value investing emphasized the importance of thinking independently and avoiding the crowd, stating that success on Wall Street requires both correct and independent thought.
The Power of Simplicity
Graham’s later years shifted his focus from complex analyses to what he called the “group approach.” Rather than searching for standout companies, he emphasized buying groups of undervalued stocks based on simple criteria like low earnings multiples or strong asset backing. This approach consistently outperformed the broader market in his 50-year study.
The thing that I have been emphasizing in my own work for the last few years has been the group approach. To try to buy groups of stocks that meet some simple criterion for being undervalued-regardless of the industry and with very little attention to the individual company.
I want to double the interest rate in terms of earnings return. However, in most years the interest rate was less than five percent on AAA bonds. Consequently, I have set two limits. A maximum multiple of 10 even when interest rates are under five percent, and a maximum multiple of 7 times even when interest rates are above seven percent as they are now. So typically my buying point would be double the current AAA interest rate with a maximum multiplier between 10 and 7. My research has been based on that.
Imagine-there seems to be practically a foolproof way of getting good results out of common stock investment with a minimum of work. It seems too good to be true. But all I can tell you after 60 years of experience, it seems to stand up under any of the tests that I would make up.
Beware of Wall Street's Behavior
Ben was candid about his distrust of Wall Street’s behavior, criticizing its short memory and greed-driven cycles.
They used to say about the Bourbons that they forgot nothing and they learned nothing, and I'll say about the Wall Street people, typically, is that they learn nothing, and they forget everything.I have no confidence whatever in the future behavior of the Wall Street people. I think this business of greed-the excessive hopes and fears and so on-will be with us as long as there will be people. There is a famous passage in Bagehot, the English economist, in which he describes how panics come about. Typically, if people have money, it is available to be lost and they speculate with it and they lose it-that's how panics are done. I am very cynical about Wall Street.
Making Money in Turbulent Times
Despite the turmoil of World War II, Graham noted that his firm managed to generate profits. While many might shy away from investing during periods of uncertainty, Graham saw these as opportunities.
We had no real problems in running our business. That's why I kind of lost interest. We were no longer very challenged after 1950. About 1956, I decided to quit and to come out here to California to live.
I felt that I had established a way of doing business to a point where it no longer presented any basic problems to be solved. We were going along on what I thought was a satisfactory basis, and the things that presented themselves were typically repetitions of old problems which I found no special interest in solving.
Reflections on Security Analysis
His book, Security Analysis, co-written with David Dodd in 1934, remains one of the most influential texts in finance. In the interview, Ben described how teaching inspired him to refine his knowledge before writing the book. He credited Dodd, who had been one of his students, as indispensable to the project.
Interestingly, Graham later downplayed the importance of complex analyses detailed in Security Analysis, advocating instead for simpler, principle-based investing techniques.
They called it the "Bible of Grahf-m and Dodd." Yes, well now I have lost most of the interest I had in the details of security analysis which I devoted myself to so strenuously for many years. I feel that they are relatively unimportant, which, in a sense, has put me opposed to developments in the whole profession. I think we can do it successfully with a few techniques and simple principles. The main point is to have the right general principles and the character to stick to them.
Think Independently
One of Graham’s key takeaways is the importance of independent thinking. He advised against following the crowd or being swayed by popular sentiment.
There are two requirements for success in Wall Street. One, you have to think correctly; and secondly, you have to think independently.
Graham about Index Funds
The father of value investing expressed a strong appreciation for index funds as a practical and straightforward strategy for institutional investors. He proposed using the S&P 500 as a baseline, complemented by selective adjustments from managers held accountable for their results. Graham’s view on index funds remains prescient in today’s context, where passive investing has become a dominant strategy for achieving market returns without unnecessary complexity.
I have very definite views on that. I have a feeling that the way in which institutional funds should be managed, at least a number of them, would be to start with the index concept-the equivalent of index results, say 100 or 150 stocks out of the Standard & Poor's 500. Then turn over to managers the privilege of making a variation, provided they would accept personal responsibility for the success of the variation that they introduced. I assume that basically the compensation ought to be measured by the results either in terms of equaling the index, say Standard & Poor's results, or to the extent by which you improve it. Now in the group discussions of this thing, the typical money managers don't accept the idea and the reason for non-acceptance is chiefly that they say-not that it isn't practical-but that it isn't sound because different investors have different requirements. They have never been able to convince me that that's true in any significant degree-that different investors have different requirements. All investments require satisfactory results, and I think satisfactory results are pretty much the same for everybody. So I think any experience of the last 20 years, let's say, would indicate that one could have done as well with Standard & Poor's than with a great deal of work, intelligence, and talk.
Critique of the Efficient Market Hypothesis (EMH)
Graham challenged the idea that stock prices always reflect their true value, a key claim of the EMH. While he acknowledged that information is widely available, he dismissed the notion that market prices are inherently rational.
He argued that inefficiencies and mispricings often exist, creating opportunities for investors willing to dig deeper. For him, this was the foundation of value investing: finding undervalued stocks that others overlooked.
Well, they would claim that if they are correct in their basic contentions about the efficient market, the thing for people to do is to try to study the behavior of stock prices and try to profit from these interpretations. To me, that is not a very encouraging conclusion because if I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what's going to happen to the stock market.
And all you have to do is to listen to "Wall Street Week" and you can see that none of them has any particular claim to
authority or opinions as to what will happen in the stock market. They, and economists, all have opinions and they are willing to express them if you ask them. But I don't think they insist that their opinions are correct, though.
Advice for Aspiring Investors
When asked for advice to aspiring investors, Ben emphasized the importance of learning and sticking to fundamental principles.
This advice is evergreen: build a foundation in value investing principles, such as understanding intrinsic value and maintaining a margin of safety, and let discipline guide your decisions.
I would them to study the past record of the stock market, study their own capabilities, and find out whether they can identify an approach to investment they feel would be satisfactory in their own case. And if they have done that, pursue that without any reference to what other people do or think or say. Stick to their own methods. That's what we did with our own business. We never followed the crowd, and I think that's favorable for the young analyst. If he or she reads The Intelligent Investor-which I feel would be more useful than Security Analysis of the two books-and selects from what we say some approach which one thinks would be profitable, then I say that one should do this and stick to it. If you start on a sound basis, you are half-way along.
Summary
Graham’s final interview in 1976 highlights his timeless investment wisdom, emphasizing simplicity, independent thinking, and skepticism toward market efficiency. He advocated for a “group approach” to investing, focusing on undervalued stocks using simple criteria like earnings yield and asset values, which consistently outperformed complex strategies. He critiqued Wall Street’s greed-driven cycles and dismissed the EMH, arguing that stock prices often stray from intrinsic value, creating opportunities for disciplined investors. His views on index funds underscored their practicality, and his advice to aspiring investors remains evergreen: build a strong foundation in principles, stay disciplined, and think independently.
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