This article by Jake Rosser is excerpted from a letter of Coho Capital Management.

“Ben Graham had a lot to learn as an investor…. buying those cheap cigar-butt stocks was a snare and a delusion.” –Charlie Munger

The dean of value investing Benjamin Graham beat the market by an average of 2.5% a year over two decades and essentially invented security analysis as a profession. Graham focused his analytical efforts on the discrepancy between price and value and maintained strict rules on selling once the two converged. He was a cigar-butt investor through and through, happy to take the last puff if the price were right. Given his formulaic approach, it is interesting that Graham made the vast majority of his fortune by violating his signature rules; First with position sizing, putting 20% of his assets in a single stock, Geico, and second by never selling, despite Geico’s valuation premium. In what is surely one of the greatest stock investments of all time, Geico rose over 200-fold from Graham’s purchase price.

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