Followers of value investing are celebrating our anniversary. 30 years ago, on May 17, 1.984, Warren Buffett gave a lecture at Columbia University called "The Superinvestors of Graham-and-Doddsville", based on which an article was published that has gone down in history today. today is as valid as 30 years ago. To celebrate, I will make a brief summary of the article "The Superinvestors of Graham-and-Doddsville" by Warren Buffett, I will give you a link to the original PDF file, and I will make a brief compilation of selected fragments of the article translated into Spanish.
Resumen de “The Superinvestors of Graham-and-Doddsville”
The Superinvestors of Graham-and-Doddsville is a relatively short article (13 pages) written by Warren Buffett on the occasion of a ceremony for the 50th anniversary of the publication of the book "Security Analisys" de Benjamin Graham y David Dodd, one of the best and most comprehensive investment books ever written. Therefore, today we are having a double anniversary, since 80 years ago this essential classic of value investing was published, which occupies a privileged place among my Recommended books to learn to invest in the stock market.
The text tells the story of Graham-and-Doddsville, a fictional place where all investors manage to consistently beat the market in a world where markets are supposedly efficient. This place is used as a symbolism that represents the disciples of Graham and Dodd, that is, the followers of the value investing, who have been able to have extraordinary results in their investments, showing that the efficient market theory has no validity in practice.
In the link that I put below, you can read the article value.
The reason many studies focus on the variables of price and volume is that now, in the age of computers, we have almost endless data available on it. That is not to say that these studies are of any use; it just happens that the data is there and that academics have worked hard to learn the math skills necessary to manipulate it. Once they have acquired these abilities, it seems a sin not to use them, even if their use is useless or even negatively useful.
Walter Castle It was simply saying that if a business is worth a dollar and you can buy it for 40 cents, something good could happen to you. And that's what he did over and over again.
Every time Perlmeter buys a share it is because it is getting more than the price it pays for it. It's the only thing she thinks about. She does not look at the quarterly profit projections, she does not look at next year's profit, she does not look at what day of the week it is, she does not care what financial analysts say anywhere, she is not interested in the price trend. She just wonders: how much is the business worth?
I am convinced that there is a lot of inefficiency in the market. These Graham-and-Doodsville investors have exploited the differences between price and value. When the price of a stock can be influenced by the Wall Street "herd" with prices set by the most emotional person, the most greedy person, or the most depressed person, it is difficult to argue that the market price is always rational. In fact, market prices often don't make sense.
Sometimes risk and reward are positively correlated. If you buy a dollar bill for 60 cents, it is more risky than if you buy a dollar bill for 40 cents, but the expected reward is greater in the second case. The higher the reward potential in a value portfolio, the lower the risk.
You have to have the knowledge that allows you a general estimate of the value of the underlying business. But don't tweak it too much. This is what Ben graham meant when referring to safety margin. Don't try to buy businesses worth $ 83 million for $ 80 million. You must leave yourself a huge margin. When you build a bridge, you insist that it can support 30.000 kilos, but you only drive 10.000 kilos trucks on it. This same principle is used in investing.
I have not seen any trend to value investing in the 35 years that I have been practicing it. It seems that there is some evil human characteristic that wants to make things easy. The academic world has avoided teaching value investing for the past 30 years. It is likely to continue in this way. Ships will sail around the world, but the Flat Earth Society will flourish. Discrepancies between price and value will continue to occur in the markets, and those who read Graham and Dodd will continue to prosper.