The Superinvestors of Graham-and-Doddsville

"The Superinvestors of Graham-and-Doddsville" is an article by Warren Buffett promoting value investing, published in the Fall, 1984 issue of "Hermes", Columbia Business School magazine. It was based on a speech given on May 17, 1984 at the Columbia University School of Business in honor of the 50th anniversary of the publication of Benjamin Graham and David Dodd's book "Security Analysis". The speech and article challenged the idea that equity markets are efficient through a study of nine successful investment funds generating long-term returns above the market index. All these funds were managed by Benjamin Graham's alumni, pursuing different investment tactics but following the same "Graham-and-Doddsville" value investing strategy.

The article has been reprinted in books on Buffet (e.g. Miles, 2004).

The speech

Columbia Business School arranged celebration of Graham–Dodd's jubilee as a contest between Michael Jensen, a University of Rochester professor and a proponent of efficient market theory, and Buffett, who was known to oppose it. Jensen argued that a simple coin tossing experiment among a large number of inverstors would generate a few successive winners, and the same happens in real financial markets. Buffett grabbed Jensen's metaphore and started his own speech with the same coin tossing experiment. There was one difference, he noted: somehow, a statistically significant share of the winning minority belongs to the same league. They follow value investing rules set up by Graham and Dodd.

The statement

Buffet starts the article with a rebuttal of a popular academic opinion that Graham and Dodd's approach ("look for values with a significant margin of safety relative to [stock] prices") [Buffett, p. 4] had been made obsolete by improvements in market analysis and information technology. If the markets are efficient, than noone can beat the market in the long run; an apparent long-term success can happen by pure chance only. However, argues Buffett, "if" a substantial share of these long-term winners belong to a group of value investing adherents, "and" they operate independently of each other "than" their success is more than a lottery win; it is a triumph of the right strategy. [Buffett, p. 6-7]

Buffet then proceeds to present nine successful investment funds. One is his own Buffett Partnership, liquidated in 1969. Two are pension funds with three and eigth portfolio managers; Buffett asserts that he had influence in selecting value-minded managers and overall strategy of the funds. Other six funds were managed by Buffett's business associates or people otherwise well known to Buffett. Seven investment partnerships have demonstrated average long-term returns with a double-digit lead over market average. Pension funds, bound to more conservative portfolio mix, showed 5% and 8% lead.

Buffett takes special care to explain that the nine funds have little in common except the value strategy and personal connections to himself. Even when there are no striking differences in stock portfolio, individual mixes and timing of purchases are substantially different. The managers were indeed independent of each other.

Buffett made three side notes concerning value investment theory. First, he underscored Graham-Dobbs postulate: the higher the margin between price of undervalued stock and its value, the "lower" is investors' risk. On the opposite, as margin gets thinner, risks increase. Second, potential returns diminish with increasing size of the fund, as the number of available undervalued stocks decreases. [Buffett, p. 14] Finally, analyzing the backgrounds of seven successful managers, he makes a conclusion that an individual either accepts value investing strategy at first sight, or never accepts it, regardless of training and other people's examples. [Buffett, p. 11] "There seems to be a perverse human characteristic that likes to make easy things difficult... it's likely to continue this way. Ships will sail around the world, but the Flat Earth Society will flourish... and those who read their Graham and Dodd will continue to prosper". [Buffett, p. 15]


"Graham-and-Doddsville" influenced Seth Klarman's 1991 "Margin of Safety" and was cited by Klarman as a principal source; "Buffett's argument has never, to my knowledge, been addressed by the efficient-market theorists; they evidently prefer to to continue to prove in theory what was refuted in practice". [Klarman, p. 99] In 2000s Klarman's book, never reprinted since 1991, achieved a cult status and sells for four-digit prices. [The $700 Used Book]

Buffett's article was a "titular subject" of 2001 "Value Investing: From Graham to Buffett and Beyond". [Greenwald et al.]

In 2005 Louis Lowenstein compiled "Graham-and-Doddsville Revisited" – a review of the changes in mutual fund economics, comparing the Goldfarb Ten funds against Buffett's value investing standard. Lowenstein pointed out that "value investing requires not just patient managers but also patient investors", since value investing managers have also demonstrated regular drops in portfolio values (offset by subsequent profits). [Lowenstein, 2006:14]


Buffett, despite his untarnished reputation in mainstream business press, remains rarely cited within traditional academia. A 2004 search of 23,000 papers on economics revealed only 20 references to "any" publication by Buffett.Kelly, Price] A significant share of references simply rebutt Buffett's statements or reduce his own success to pure luck and probability theory. William Sharpe (1995) called him "a three-sigma event", Michael Lewis (1989) a "big winner produced by a random game".





Wikimedia Foundation. 2010.

Look at other dictionaries:

  • The Superinvestors of Graham-and-Doddsville — ist ein berühmt gewordener Essay von Warren Buffett, der aus einer Ansprache hervorging, die er am 17. Mai 1984 an der Columbia University School of Business anlässlich eines Festaktes zum 50 jährigen Jubiläum des Erscheinens der Erstausgabe des… …   Deutsch Wikipedia

  • The Intelligent Investor — von Benjamin Graham ist ein Buch über das Investieren in Wertpapieren. Es erschien 1949, die aktuelle Ausgabe mit Kommentaren von Jason Zweig stammt aus dem Jahre 2003. Warren Buffett, ein ehemaliger Student Grahams während seiner Lehrtätigkeit… …   Deutsch Wikipedia

  • The Intelligent Investor — Infobox Book name = The Intelligent Investor title orig = translator = image caption = 2003 edition, updated by Jason Zweig author = Benjamin Graham illustrator = cover artist = country = USA language = English series = subject = Finance genre =… …   Wikipedia

  • Intelligent Investieren — The Intelligent Investor von Benjamin Graham ist ein Buch über das Investieren in Wertpapieren. Es erschien 1949, die aktuelle Ausgabe mit Kommentaren von Jason Zweig stammt aus dem Jahre 2003. Warren Buffett, ein ehemaliger Student Grahams… …   Deutsch Wikipedia

  • Value investing — is an investment paradigm that derives from the ideas on investment and speculation that Ben Graham David Dodd began teaching at Columbia Business School in 1928 and subsequently developed in their 1934 text Security Analysis . Although value… …   Wikipedia

  • Warren Buffett — Buffett speaking to students from the University of Kansas School of Business, May 6, 2005 …   Wikipedia

  • Warren Buffett — spricht zu Studenten (2005). Wa …   Deutsch Wikipedia

  • Charlie Munger — Munger at Berkshire Hathaway s 2010 shareholder meeting Born January 1, 1924 (1924 01 01) (age 87) Omaha, Nebraska …   Wikipedia

  • William J. Ruane — (* 24. Oktober 1925 in Chicago; † 4. Oktober 2005 in New York) war ein US amerikanischer Value Investor, Fondsmanager und New Yorker Philanthrop. Er ist einer der Personen, die im Essay The Superinvestors of Graham and Doddsville Erwähnung finden …   Deutsch Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.