The Founding Letter
Ben Graham correctly asserted that each investor must first decide whether to be defensive or enterprising, and warned that any attempt to occupy the middle ground was likely to fail. Index investing has worked wonderfully for the defensive investor. The Enterprising investor must commit to a professional effort in time and analysis. As Graham wrote: “Investment is most intelligent when it is most businesslike.” The enterprising investor runs the operation the way an owner runs a business, a startlingly understated concept given that marketable securities do indeed offer ownership of business.
The tools of professional security analysis are sold by the seat and priced for the institution. Graham’s audience never had an edge in tooling, but rather an intellectual framework that costs no more than $30 to read about and resonates in varying magnitudes in a self-selecting manner. SEC Edgar has annual and quarterly financial reporting for all to access. The two men who ran Berkshire Hathaway relied mostly on the annual reports, the 10-Qs, and for a few hundred dollars a year, hard copies of the Value Line Investment Survey were kept in their offices; asked by a Value Line analyst at the 1998 annual meeting how he managed to review the whole field of stocks, Buffett answered with it, “we get incredible value,” and Munger called the charts “a human triumph.”
The price of the instruments is half of what changed. The other half is what is sold alongside them now.
Wall Street has demonstrated that it will go wherever fees can be generated whether it’s in derivatives, premature IPOs & SPACs, misguided M&A, crypto, and now the latest is prediction markets. An account holder can purchase out-of-the-money options contracts expiring within days, wager on the next inflation print, and a bet on a football game all on the brokerage app that they opened with the intent to invest their savings. Gambling is pervasive in modern society and obviously will always coincide with easy money.
Buffett described the early signs in his 2005 letter: “Activity is their friend and, in a wide variety of ways, they urge it on.” He reported the result in his 2023 letter: “For whatever reasons, markets now exhibit far more casino-like behavior than they did when I was young. The casino now resides in many homes and daily tempts the occupants.”
However, even under a prolonged period of monetary excess, it’s amazing that society is not yet satiated or even flat out exhausted; the non-stop sports betting marketing campaigns, the entirety of the “crypto” landscape (remember FTX?), state lotteries, casinos, and now prediction markets. In certain cases, the share of disposable income allocated by consumers to gambling must compete, and even be replaced, with various AI model subscriptions popular among the same young male cohort that has gravitated toward gambling.
It isn’t just on Wall Street where the plot seems to have been lost. Perhaps the blame belongs to academia and a failure to properly teach investing (financial literacy broadly at that). For a generation finance departments at colleges and universities, through the efficient market hypothesis indirectly posed that security analysis was itself wasted effort. A doctrine Buffett, writing in 1988, had watched become “almost holy scripture in academic circles”; he counted it as a gift to compete against “opponents who have been taught that it’s useless to even try.”
Buffett’s answer, repeated across fifty years, was never a special terminal or degree. It was a book, The Intelligent Investor, published in 1949 and still in print. “My financial life changed with that purchase,” he wrote of his copy in 2013. In the preface he later added to Graham’s fourth edition, he set the whole requirement down: successful investing over a lifetime “does not require a stratospheric IQ, unusual business insights, or inside information”; it requires “a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”
Thematic investing is another form of the fee generation we discussed earlier in this note. Warren Buffett went further in 1992 and retired the style label altogether: the very term “value investing” is redundant, he wrote, for “What is ‘investing’ if it is not the act of seeking value at least sufficient to justify the amount paid?” Thirty-four years later he still can’t shake this label.
The enterprising investor should also be wary of the folklore surrounding holding forever. “Our favorite holding period is forever” appears in the 1988 letter about a specific class of business, and that same letter names exactly three holdings Berkshire then considered permanent. When the folklore had outrun the fact, Buffett restated the policy in 2016: “we have made no commitment that Berkshire will hold any of its marketable securities forever,” and “we regard any marketable security as available for sale, however unlikely such a sale now seems.” The refusal that does exist, the one he concedes in Berkshire’s owner’s manual “hurts our financial performance,” covers only the businesses Berkshire controls.
The Buffett who managed small sums ran anything but a museum. His partnership’s portfolio was built of categories: “generals” bought well below value, “work-outs,” (arbitrage today) which he defined as “securities with a timetable,” and control positions, with capital moving among the three as the arithmetic moved. He put the size handicap in one line: “A fat wallet, however, is the enemy of superior investment results.” And when the game changed in 1969, he closed the partnership, telling his partners he would not “spoil a decent record by trying to play a game I don’t understand just so I can go out a hero.”
Graham’s own firm, for all his reputation as the father of patient value, ran arbitrages, liquidations, and hedged positions as a matter of course, and the 1949 edition granted the enterprising investor a field of its own: special situations, “a technical branch of investment which requires a somewhat unusual mentality and equipment,” of which he judged that “probably only a small percentage of our enterprising investors are likely to engage in it.”
The enterprising investor does not have any single holding period or style. To reiterate, investment is most sound when thought of as a business (yes, in a brokerage account), and the enterprising investor has entered into the business of capital allocation. It is an opportunity set, entered where analysis finds a discrepancy between price and value, and left when the discrepancy closes or the analysis fails. What it asks for is the courage of convictions backed by coherent analysis, and the honesty to fold when the analysis is wrong. The latter is equally important, as Charlie Munger put it: “you don’t have to make it back the way you lost it.” A market in which that work goes unpracticed keeps leaving discrepancies for the few who still do it.
Using Owner Scorecard alongside annual & quarterly filings is one of the ways that an individual enterprising investor can learn and navigate the world’s massive universe of marketable securities and the businesses that they represent in an efficient manner. There are no live market quotes on Owner Scorecard since they reveal nothing about intrinsic business value itself; it’s only after one’s own analysis and calculation of intrinsic value has occurred that the current market price can produce any material insight at all. Mr. Market’s erratic nature and daily quotations must serve you, not harm you.
There are no ratings, price targets, or projections of future company financials. The record pages hold what the companies filed and what arithmetic can honestly be done on it; the decision belongs to the reader, and nothing here will pretend to make it for you. Research published here argues from that record and is answerable to it: every Note carries its date, errors are corrected at the foot of the page and logged in the open, and a published Note is never silently changed. The record pages refresh as the companies file.
The record pages, every company and every filing table, will stay free. If some research one day carries a price, readers will be the ones who pay it. There is no advertising here and no sponsorship, and no broker pays this publication a referral. Nothing in our economics improves when you trade.
The people who write here may own securities discussed here; the positions may change; and no position will ever be announced, not when it is opened and not when it is closed. A publication that announces its positions soon writes about what it owns instead of what the record shows, and one denial makes every later silence an announcement, so the silence is total, in both directions. Around any company we publish research on, personal trading stops five days before publication and does not resume until ten days after it. A dated log of every personal trade is kept, so that if the rule is ever questioned the answer does not rest on memory.
Graham never claimed the enterprising road was for most people, and the choice he demanded is a real one. The defensive investor’s problem has had a product on offer since 1976. This publication adds nothing to it and does not try. It exists for the reader who took the other road, who treats the operation as a business, reads the primary record, and accepts the terms that come with it, in exchange for an advantage the institutions cannot buy back: the freedom to act on his own analysis, at his own size, on no one’s timetable.
Ryan Reinsant
Founder, Owner Scorecard