tenets of Ben Graham and David Dodd, authors of the value-investing bible Security Analysis – have beaten the market by a wide margin. This isn’t an accident or a coin flip. These investors all used the same principles to guide their choices. Their picks were not random or lucky. They involved all different types of securities and strategies. The only common theme was an intense focus on understanding the value of each security purchased. As Warren Buffett wrote in The Super Investors of Graham and Doddsville ... The common intellectual theme of the investors from Graham- and-Doddsville is this: They search for discrepancies between the value of a business and the price of small pieces of that business in the market. I’m convinced that there is much inefficiency in the market. These Graham-and-Doddsville investors have successfully exploited gaps between price and value. When the price of a stock can be influenced by a “herd” on Wall Street with prices set at the margin by the most emotional person, or the greediest person, or the most depressed person, it is hard to argue that the market always prices rationally. In fact, market prices are frequently nonsensical. I have seen no trend toward value investing in the 35 years that I’ve practiced it. There seems to be some perverse human characteristic that likes to make easy things difficult. The academic world, if anything, has actually backed away from the teaching of value investing over the last 30 years. It’s likely to continue that way. Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace, and those who read their Graham & Dodd will continue to prosper. Step 1 in our guide to beating the market is based on the ideas of the men above. Before you buy a stock or bond (or anything else),
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