Benjamin Graham and Ayn Rand

 

Ayn Rand's books have a lot in common with Graham's teachings.

The core philosophy of Rand's books is called Objectivism.
Graham recommended analysis using only objective past numbers, instead of subjective future estimates.

Rand said “The hardest thing to explain is the glaringly evident which everybody has decided not to see.”
Graham said "You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right."

Rand said "Emotions are not tools of cognition . . . one must differentiate between one’s thoughts and one’s emotions with full clarity and precision."
Graham said "Individuals who cannot master their emotions are ill-suited to profit from the investment process.".

Rand said “A creative man is motivated by the desire to achieve, not by the desire to beat others.”
Graham said "To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks."

There are many more similarities between the two philosophies. But rather than hypothesizing what a John Galt or a Howard Roark might have done, we could simply follow the extremely precise rules that Benjamin Graham himself has set down for selecting stocks.

NCAV stocks are simply the most well-known of Graham's strategies, and the source of the general misconception that Graham only recommended cheap stocks. Benjamin Graham actually recommended different categories of stocks - Index, Defensive, Enterprising and NCAV - with different qualitative and quantitative criteria for each category.

Article 1: Tutorial - Benjamin Graham and GV Stocks discusses Graham's 17 stock selection criteria and shows how to apply them to 5000 NYSE & NASDAQ stocks today.

Also, if memory (from a couple of decades ago) serves, Peter Keating and his "second-handers" from The Fountainhead appropriate Howard Roark's innovative design for an important building and build it themselves, after having made grotesque modifications based on their own incompetent understanding of architecture.

Roark then destroys this corruption of his genius, as an expression of the struggle of individualism against collectivism. The Graham we know from his books was perhaps too benign and generous for anything so extreme, but here's something a younger Graham himself might have blown up.

Intrinsic Value = Earnings x (8.5 + 2 x growth)

This is a formula that is often attributed to Graham today. Graham actually warned against this formula. He only used it to show why such growth predictions are unreliable, and as an example of what NOT to do.

But incredibly - due to a minor misprint in recent editions of The Intelligent Investor - most analysts claiming to use Graham's methods today, recommend stocks using this formula, instead of the methods he actually recommended in the "Stock Selection" chapters.

Article 2: Understanding The Benjamin Graham Formula Correctly discusses the issue in detail.