A long and successful history
Early in the twentieth century Benjamin Graham developed what was to become the philosophy of Intrinsic Value Investing. His landmark book, Security Analysis (1934), describes his two main insights:
- “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative”. In clearly separating investing from speculating, Graham reaches a rational solution toward investing while acknowledging that “safety of principal”, though not absolute, should be expected under reasonable circumstances.
- He then defines his solution by introducing “Intrinsic Value, “that value which is determined by the facts” and “Margin of Safety”, the dollar difference between the Intrinsic Value of a security and the lower price at which it can be obtained. He then asserts that the purchase of a security will qualify as investing (as opposed to speculating) only when there is a Margin of Safety wide enough to promise a reasonable expectation of “safety of principal”.
Teaching the first generation of Intrinsic Value investors.
For many years, Benjamin Graham taught courses in finance at Columbia University. Among his students was Warren Buffett who, in a later speech   at Columbia, illustrated the power of Graham’s approach as a capital building investment process by describing the outstanding performances of a number of Graham’s students.
While the principles endure, their application evolves constantly.
As circumstances change and opportunities evolve, Intrinsic Value investors adapt to these new environments and expand the field to which the principles of Intrinsic Value investing apply. What always remains the same are the two core concepts of Intrinsic Value and Margin of Safety. Seth Klarman, in his excellent book, Margin of Safety, articulates how these core concepts remain valid today, in a world that is very different from the one in which Benjamin Graham lived.
How Intrinsic Value Investing differs
In the following pages we describe what investment risks Intrinsic Value Investing addresses, and how these risks are mitigated by a consistent, well established process for selecting, tracking and selling investments, all with the aim of building up one’s capital base.