Smith & Wesson immediately means something to a person familiar with firearms. In much the same way, the phrase Graham and Dodd carries a lot of weight with value investors. David LeFevre Dodd, the lessor known of the two, was born in 1895. He was an educator and close colleague of Benjamin Graham at the Columbia Business School.
The 1929 stock market crash almost wiped out Graham. The crash inspired Graham to search for a more conservative, safer way to invest. Graham agreed to teach with the stipulation that someone take notes. David Dodd a young instructor at Columbia volunteered to be that someone. Those notes served as the basis for the 1934 book Security Analysis, which is considered the first book on value investing and is the longest running investment text ever published.
In the late 1950's value investing was pushed aside for modern portfolio theory (MPT) championed by academics at The University of Chicago. MPT makes use of quantitative analysis. Where value investing sees securities as priced correctly, under-priced, or over-priced, MPT proponents insist that under the efficient market hypothesis a stock price is always correctly priced. This teaching was so prevalent between 1965-1990 that Warren Buffett quipped, "You couldn't advance in a finance department in this country unless you taught that the world was flat."
Shortly after Dodd's death in 1988, Bruce Greenwald, a professor at Columbia took up the Value Investing banner. He found the overwhelming success of Value investors nearly impossible to dismiss. Just as reliable data was solidifying the arguments for Value Investing, MPT was showing some flaws. In 1994, Greenwald overhauled and relaunched the Value Investing curriculum at Columbia. Today, Value Investing enjoys broad appeal among academicians and investors around the world.
At the age of 93, David Dodd died on September 18, 1988 of respiratory failure. At the time of his death, Security Analysis, the book he coauthored with Graham had sold over 250,000 copies.
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Ben Grossbaum was born on May 8, 1894 in London and moved to New York with his family when he was one year old. Young Ben was motivated by the death of his father and the humiliation of poverty. Wanting a better life, he became a model student, graduating as the class salutatorian from Columbia University at the age of 20.
Upon graduation, Ben received an invitation for employment as an instructor in English, Mathematics, and Philosophy, but instead he chose a job on Wall Street. Ben was a student of investing, spending great time studying and analyzing the financial state of companies. He was critical of the corporations for obfuscated and irregular financial reporting making it difficult for investors to discern the true state of the business's finances. Many of convictions such as returning a portion of the company's earnings to shareholders through dividend payments and not relying on future growth to justify a high price are still widely held beliefs by many today.
In 1928, Ben accepted a position teaching at the Columbia Business School and wrote several books. Along the way he spawned several well-known disciples such as Jean-Marie Eveillard, William J. Ruane, Irving Kahn, Walter J. Schloss, and Charles Brandes.
You make think that you have never heard of Ben Grossbaum, but I suspect you have. During World War II German-sounding names were regarded with suspicion, so Ben's father changed the family name from Grossbaum to Graham. Today we know Ben Grossbaum as Benjamin Graham, the father of Value Investing.
There was one other student that I failed to mention above, Warren Buffet. Behind only his father, Buffet describes Graham as the second most influential person in his life. Buffett, credits Graham as grounding him with a sound intellectual investment framework. "The best book on investing ever written," is how Buffet describes Graham's book The Intelligent Investor. According to Warren Buffett, Benjamin Graham said that he wished every day to do something foolish, something creative, and something generous. Buffett said that Graham excelled most at the last.
In my stock analyses, one of the fair-value metrics I look at is the Graham Number, obviously developed by Benjamin Graham. Next week we'll take a look at how the Graham Number is calculated.
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Jeremy James Siegel, known as Wizard of Wharton, was born on November 14, 1945 in Chicago, IL. He has undergraduate degrees in Mathematics and Economics from Columbia University, and has a Ph.D from MIT. Currently Mr. Siegel is the Russell E. Palmer Professor of Finance at the Wharton School of Business at the University of Pennsylvania. Considered an expert on the economy and financial markets, he frequently appears on CNN, CNBC, NPR and is a regular columnist for Kiplinger's. With WisdomTree, Mr. Siegel will now have the opportunity to put in practice what he has been teaching, while the whole world watches. I've added DTN to my watch list.
For many, he may be better known for what was said about him by a very influential person. In a Q&A session at the 2006 Berkshire Hathaway annual meeting, Charlie Munger, Berkshire's Vice Chairman was asked to comment on Siegel's theories. Munger replied, "I think Jeremy Siegel is demented." Warren Buffett, clearly a little embarrassed, added "Well he’s a very nice guy." Munger continued, "He may well be a very nice guy, but he’s comparing apples to elephants in trying to make accurate projections about the future."
More recently, Mr. Siegel has worked as a consultant and board member at WisdomTree, a money management firm specializing in exchange-traded funds (ETFs). In his book, The Future for Investors, Mr. Siegel points out that the 100 highest-yielding stocks of the S&P 500 outperformed the broader index by more than three percentage points annually from 1957 to 2003. Leveraging his research, The WisdomTree Dividend Top 100 Fund (DTN) consist of the 100 highest-yielding members of the 300 largest companies by market cap in WisdomTree's Dividend Index. Unlike conventional indexes that are weighted by market cap, the WisdomTree fund is weighted by yield. The theory here is that market cap weighting will cause the fund to buy high and sell low, while weighting by yield will do just the opposite since as the yield rises the share price drops.
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A 2003 CNN-Money article described Charles Mangum as such:
As the son of a Merrill Lynch broker, Charles Mangum has always been fascinated by the market. At age 14, he bought a few shares of convenience-store chain Circle K and watched his investment double. "I thought, 'This is so much fun,'" says Mangum.In 1990, Charles joined joining Fidelity Investments and worked as a research analyst and portfolio manager. Since January 1997, he has worked as vice president and manager of Fidelity's Dividend Growth Fund (Prospectus) and also manages other Fidelity funds.
A few years later, he suffered his first loss when another of his picks, Nichols Oil, went bankrupt. Mangum was unfazed. "It didn't change my view of stocks," he says. "I knew I loved investing."
His investment philosophy is to find mature growth stocks that tend to be less risky and stronger financially. The emphasis on strong balance sheets steered him clear, for the most part, of tech bubble in the late 1990's. His portfolio is typically concentrated in health-care, consumer and financial stocks, mainly large-caps and midcaps. That is not to say his fund does not take chances. Charles makes concentrated bets by scooping up troubled but financially strong companies.
Charles is now 42 years old and according to a recent Motley Fool article, the Fidelity Dividend Growth fund has beaten 80% of its peers over the past decade. The article goes on to say:
Like you and me, Mangum is in pursuit of the ultimate dividend stock -- the stock that will leave investors set for life. And having trailed his competition in recent years, Mangum is hungry -- and looking for a promising stock that the market's turned its back on.And just what is this stock? It is Bank of America (BAC). The above article notes several important facts about BAC:
- The entire financial sector is currently out of favor
- The company absolutely dominates U.S. retail banking
- It is currently paying a dividend of around 7%
- It has a solid balance sheet. BAC sold off its sub-prime business a while back, and credit appears under control
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