THE EVOLUTION OF THE IDEA OF “VALUE INVESTING”: FROM BENJAMIN GRAHAM TO WARREN BUFFETT by Robert F. Bierig

THE EVOLUTION OF THE IDEA OF “VALUE INVESTING”: FROM BENJAMIN GRAHAM TO WARREN BUFFETT by Robert F. Bierig

1. Introduction
Before the stock market crash of 1929, portfolio investment was a disordered and 
muddled activity. Benjamin Graham and David L. Dodd’s Security Analysis, first published in 
1934, brought structure and logic to the field, creating an intellectual framework for sound 
investment. In an area where much looks foolish shortly after publication, Graham’s principles 
have proved reliable for over sixty-five years. Moreover, as Warren Buffett wrote in a

remembrance about Graham in the Financial Analysts Journal, their value has often been 
“enhanced and better understood in the wake of financial storms that demolished flimsier 
intellectual structures.”
Graham mostly operated in a business environment conditioned by the extreme 
economic collapse of the 1930s. Indeed, the majority of investors remained shell-shocked for 
many years thereafter. As a result, Graham and his disciples could readily find extraordinary 
bargains in the public securities markets. However, in investing, like in life, one must adapt to the 
conditions at hand.
Investors in the United States eventually gained insight from the recognition that stocks 
had been chronically mispriced on the low side. Accordingly, investors bid stock prices higher 
and higher, and, by and large, the most obvious bargains of the type Graham had always 
searched for vanished. Thus, in order to remain successful, the Ben Graham disciples had to 
change their definition of a bargain in various ways. Graham’s most famous pupil, Warren 
Buffett of Omaha, Nebraska, is generally credited with refining and enlarging his mentor’s 
principles. Both because of the enormous size of Buffett’s chief investment vehicle, Berkshire 
Hathaway, and because he finds businesses more interesting than did Graham, Buffett tries to 
find businesses whose cash flows he expects to grow substantially in the future.
This paper will trace the evolution of Graham’s and Buffett’s ideas in response to changes 
in both economic conditions and their own experiences. We emphasize that this paper does not 
argue for the merits of “value investing” or claim that “value investing” is the “correct” approach. 
Nor does the paper present a biography of Benjamin Graham or Warren Buffett – although we 
introduce some biographical material in order to contextualize the development of their thought. 
After all, like all ideas and beliefs, the ideas and beliefs held by Graham, Buffett, and their fellow 
“value investors” shaped and were shaped by personal and social experience. 
We note that this paper does not simply reprise material that already appears in the widely 
available books and articles on Buffett and Graham. Rather, it narrates an evolving 
business/investment philosophy – and, therefore, it may be seen as a case study of specific kinds 
of ideas as we ask how thought in the discipline of “value investing” has changed, why it has 
changed, and how these changes have affected investment strategy and practice. In conducting

THE EVOLUTION OF THE IDEA OF “VALUE INVESTING”: FROM BENJAMIN GRAHAM TO WARREN BUFFETT by Robert F. Bierig