What is the 'Benjamin Method'

The Benjamin Method is a term used to describe the investment philosophy of Benjamin Graham, who is credited with inventing the strategy of value investing or fundamental analysis, whereby investors analyze stock data to find assets that have been systematically undervalued. 

BREAKING DOWN 'Benjamin Method'

The Benjamin Method of investing is the brainchild of Benjamin Graham, a British-American investor, economist and author. He came to prominence in 1934, with the publication of his textbook Security Analysis, which he co-wrote with David Dodd. Security Analysis is a foundational book for the investment industry today, and the teachings of Benjamin Graham heavily influenced famous investors like Warren Buffett. Benjamin Graham taught Warren Buffett while Buffett was studying at Columbia University, and Buffett has written that Graham’s books and teachings “became the bedrock upon which all of my investment and business decisions have been built.”

Benjamin Graham’s method of value investing stresses that there are two types of investors: long-term and short-term investors. Short term investors are speculators, who bet on fluctuations in the price of an asset, while long-term, value investors should think of themselves as the owner of a company. If you are the owner of a company, you shouldn’t care what the market thinks about its worth, as long as you have solid evidence that the business is or will be sufficiently profitable. 

Example of the Benjamin Method

Let’s say that you are an investor who is considering purchasing shares in the Philadelphia Widget Company. The company is well known, and is the leading purveyor of widgets in America. Its stock is trading at $100 per share, while it earns $10 per year in profits. A competitor to the Philadelphia Widget Company is the Cleveland Widget Company, a younger upstart that is not well known, but has gained market share in recent years. It earns far less money, just $2 per year, but the stock is also a lot cheaper at $15 per share

An investor following the Benjamin Method of investing would use these figures and other data to perform a fundamental analysis of the company. For instance, we can see that The Cleveland Widget Company is cheaper for every dollar of earnings to buy than the Philadelphia company. The price-to-earnings ratio of the Philadelphia Widget company is 10, whereas it is 7.5 for the Cleveland Widget Company. A follower of the Benjamin Method of investing would conclude that the Philadelphia company is overpriced simply because it is well known. This investor would choose the Cleveland company instead.

  1. Benjamin Graham

    Benjamin Graham was an influential investor who is regarded as ...
  2. Investing Sage

    An investing sage is an investor who is extremely knowledgeable ...
  3. Net Current Asset Value Per Share ...

    Net current asset value per share (NCAVPS) is a measure created ...
  4. Construction Interest Expense

    Construction interest expense is interest that accumulates on ...
  5. Last In, First Out - LIFO

    Last in, first out (LIFO) is a method used to account for inventory ...
  6. Special Item

    A special item is a large expense or source of income that a ...
Related Articles
  1. Investing

    Benjamin Graham's 3 Most Timeless Investment Principles

    Investor Benjamin Graham pioneered cutting edge concepts that propelled other top investors to fame. Find out what are his three main investment principles.
  2. Investing

    5 Great Investors Who Aren't Warren Buffett

    Here are five other investors, not named Warren Buffett, that are also considered to be the best of the best in the industry.
  3. Investing

    10 Books Every Investor Should Read

    Check out this reading list and find advice from some of the most successful investors of all time.
  4. Investing

    Is Warren Buffett Really A Value Investor?

    Warren Buffett has long been hailed as a value investor. But is that statement still accurate?
  5. Investing

    3 Misconceptions about Warren Buffett

    Learn why Warren Buffett is the man behind the curtain and how he is misunderstood regarding the ways he has adapted and changed his investing approach over the years.
  6. Investing

    Buffett's 3 Best Rules For Stock Investing

    Smiling Oracle: Buffett's investing rules have resulted in 20.9% annual returns
  7. Investing

    The Top 5 Books Every Young Investor Must Read

    Reading these respected books by finance legends will provide indispensable business and investing insights for young investors.
  8. Investing

    Five Wildly Successful Value Investors

    Warren Buffett is not the only investor who has benefited tremendously from adopting Graham's approach to investing.
  9. Managing Wealth

    Rules That Warren Buffett Lives By

    Warren Buffett, the Oracle of Omaha, has some timeless words of advice. Here are some of his guiding rules to successful investing.
  1. What is the difference between marginal benefit and marginal cost?

    Understand the difference between marginal benefit and marginal cost. Learn how and why both marginal cost and marginal benefit ... Read Answer >>
  2. How does Warren Buffett choose his stocks?

    Investors have long praised Warren Buffett’s ability to pick great companies to invest in. Here are the key considerations ... Read Answer >>
  3. How does product pricing affect gross profit and EBITDA?

    Learn how changes in product pricing can affect a company's revenue and profitability, including examples of this effect ... Read Answer >>
  4. Warren Buffett's history in school

    Warren Buffett attended multiple prestigious schools on his path to success, but he places much more significance on real-world ... Read Answer >>
Trading Center