Was Ben Graham a Quant?

This one may raise a few eyebrows.

In 1976, Benjamin Graham was 82 years old. In March of that year, he was interviewed by Hartman L. Butler, Jr., and that interview featured in a paper by Irving Kahn and Robert D. Milne called “Benjamin Graham, the Father of Financial Analysis.”[1]

The paper is relatively unknown, yet was a wonderful reflection on Graham’s life and contributions to finance. It is a quick read, and can be found by clicking here.

It is chock full of wonderful anecdotes and pearls of wisdom, but it was the interview portion that really caught my attention.

Here’s Graham himself:

“...I have lost most of the interest I had in the details of security analysis which I devoted myself to so strenuously for many years. I feel that they are relatively unimportant, which, in a sense, has put me opposed to developments in the whole profession. I think we can do it successfully with a few techniques and simple principles. The main point is to have the right general principles and the character to stick to them.”

And he continues:

‍“...I have a considerable amount of doubt on the question of how successful analysts can be overall when applying these selectivity approaches. The thing that I have been emphasizing in my own work for the last few years has been the group approach. To try to buy groups of stocks that meet some simple criterion for being undervalued - regardless of the industry and with very little attention to the individual company...and so my enthusiasm has been transferred from the selective to the group approach.”

He then goes on to define the characteristics he would require for his portfolio, primarily driven by constraints on P/Es and earnings yields relative to bonds, with additional variables related to dividend payouts and asset values. In fact, he mentioned that he was completing a 50-year study “applying application of these simple methods to groups of stocks” and had almost completed this research. Graham then stated:

‍“Imagine – there seems to be practically a foolproof way of getting good results out of common stock investment with a minimum of work. It seems too good to be true. But all I can tell you after 60 years of experience, it seems to stand up under any of the tests I could make up.”

Graham died six months after the interview, and my guess is that he never published the study (but I don’t know).

Maybe none of the above is as heretical (to stock-picking) as it appears. Graham’s rules of what belongs in a portfolio are similar to his rules of what to look for in individual names. But many of his departing comments sure seem, in some ways, sacrilegious to much of what we all read in Security Analysis and The Intelligent Investor.

To paraphrase Richard Nixon, “I am not a quant”. So I don't have an axe to grind here. Indeed, I believe that deep fundamental dives and identification of severe analytical biases can result in a few, rare ideas that can generate significant alpha in a concentrated portfolio. However, being as objective as I can be, there is little doubt that toward the end of his life, Graham was suggesting a more automatic, diversified, even lazy approach to investing.

The article is worth a read, and you can draw your own conclusions, but in my view it is very possible that Graham died a quant.