The Superinvestors of Graham-and-Doddsville
Buffett's landmark essay defending value investing as a coherent, replicable framework rather than random luck. He profiles eight investors who all learned from Ben Graham and all beat the market over long periods — statistically impossible under the efficient market hypothesis.
“I think you will find that a disproportionate number of successful coin-flippers in the investment world came from a very small intellectual village that could be called Graham-and-Doddsville.”
Special Documents
The Superinvestors of Graham-and-Doddsville
Editor's Introduction
The Occasion. In May 1984, Columbia Business School celebrated the 50th anniversary of Security Analysis, the foundational textbook published in 1934 by Benjamin Graham and David L. Dodd. David Dodd, then in his eighties, received an honorary doctorate from Columbia at that ceremony. Buffett was invited to speak — and instead of a commemorative tribute, he delivered a surgical argument against the dominant academic theory of the day.
The Target. By 1984, the Efficient Market Hypothesis (EMH) had become the orthodoxy of academic finance. Its premise: stock prices reflect all available information, so no investor can consistently beat the market through skill — only through luck. Buffett's essay is a direct, evidence-based rebuttal.
The Coin-Flip Thought Experiment. Buffett opens with a provocation. Imagine 225 million Americans each flipping a coin daily. After 20 consecutive correct calls, roughly 215 people would remain — and by chance alone they would each have turned $1 into over $1 million. A statistician would say they are simply the lucky tail of the distribution. But what if all 215 came from the same small town in Nebraska? What if they all learned coin-flipping from the same teacher? Then you are no longer looking at luck. You are looking at a methodology.
The Evidence. Buffett profiles a specific group of investors, all of whom learned from Benjamin Graham and operated completely independently of each other. Their results:
| Investor / Fund | Period | Annual Return | Market Return |
|---|---|---|---|
| Walter J. Schloss | 28¼ years | 21.3% | S&P 500: 8.4% |
| Tweedy, Browne Inc. | 15¾ years | 20.0% | S&P 500: 7.0% |
| Buffett Partnership, Ltd. | 1957–1969 | 29.5% | Dow Jones: 7.4% |
| Sequoia Fund (Bill Ruane) | 1970–1984 | 17.2% | S&P 500: 10.0% |
These investors run different portfolios, make independent decisions, hold different positions — yet they all share a single intellectual framework: search for a significant gap between the value of a business and the price of its shares.
A Note on Walter Schloss. Buffett's profile of Schloss is especially striking: "Walter never went to college, but took a course from Ben Graham at night... He has no connections or access to useful information. Practically no one in Wall Street knows him... He looks up the numbers in the manuals and sends for the annual reports, and that's about it." Over 28 years: 21.3% annually versus the market's 8.4%.
The Core Insight. Buffett identifies a precise reason why modern finance misses this: "To a man with a hammer, everything looks like a nail." Academics equipped with mathematical tools feel compelled to use them, even when a simpler framework produces better results. The Graham-and-Dodd investor ignores all that complexity and asks one question: is the price I'm paying significantly below the value of what I'm buying?
The Essay (1984)
Originally delivered as a speech at Columbia Business School, May 17, 1984. Subsequently published in Hermes — The Columbia Business School Magazine, Fall 1984.
[The full text of this essay is a scanned document. Below is the transcription.]
Is the Graham and Dodd "look for values with a significant margin of safety relative to prices" approach to security analysis out of date? Many of the professors who write textbooks today say yes. They argue that the stock market is efficient; that is, that stock prices reflect everything that is known about a company's prospects and about the state of the economy. There are no undervalued stocks, these theorists argue, because there are smart security analysts who utilize all available information to ensure unfailingly appropriate prices. Investors who seem to beat the market year after year are just lucky. "If prices fully reflect available information, this sort of investment expertise is ruled out," wrote one of today's textbook authors.
Well, maybe. But I want to present to you a group of investors who have, year in and year out, beaten the Standard & Poor's 500 Stock Index. The hypothesis that they do this by pure chance is at least worth examining. Crucial to this examination is the fact that these winners were all well known to me and pre-identified as superior investors, the most recent identification occurring over fifteen years ago. Absent this condition — that is, if I had just recently searched among thousands of records to select these names for you this morning — I would advise you to stop reading right here.
I want to present to you a group of investors who have, year in and year out, beaten the Standard & Poor's 500 Stock Index. The hypothesis is that they do this by pure chance is at least worth examining. Crucial to this examination is the fact that these winners were all well known to me and pre-identified as superior investors...
I think you will find that a disproportionate number of successful coin-flippers in the investment world came from a very small intellectual village that could be called 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. Essentially, they exploit those discrepancies without the efficient market theorist's concern as to whether the stocks are bought on Monday or Thursday, or whether it is January or July.
Source: Hermes — The Columbia Business School Magazine, Fall 1984