Smith and wesson means instantly to a person familiar with firearms. In a similar way is the sentence Graham and Dodd carries a lot of weight with value investors. David LeFevre Dodd, the well-known landlord of the two, was born in 1895. He was an educator and close colleague of Benjamin Graham at Columbia Business School.
The 1929 stock market crash nearly wiped out Graham. The crash inspired Graham to look for a more conservative and safer form of investment. Graham agreed to teach on the condition that someone take notes. David Dodd, a young Columbia instructor, volunteered to be that someone. These notes served as the basis for the 1934 book Security analysis, considered the first book on value investing and the longest published investment text.
In the late 1950s, value investing was supplanted by modern portfolio theory (MPT) advocated by scientists at the University of Chicago. MPT uses quantitative analysis. When value investing views stocks as correct, undervalued, or overvalued, MPT proponents insist that a stock price is always correctly valued under the efficient market hypothesis. This teaching was so widespread between 1965 and 1990 that Warren Buffett joked, “You couldn’t get ahead in a finance department in this country if you didn’t teach that the world is flat.”
Shortly after Dodd’s death in 1988, Columbia professor Bruce Greenwald took up the banner of value investing. He found the overwhelming success of value investors hard to deny. In the same way that reliable data supported the case for value investing, MPT had several shortcomings. In 1994, Greenwald revised and reintroduced the value investing curriculum at Columbia. Today, value investing is hugely popular with academics and investors around the world.
David Dodd died of respiratory failure on September 18, 1988 at the age of 93. At the time of his death, Security analysis, the book he co-authored with Graham, had sold over 250,000 copies.
Full disclosure: No position in the aforementioned securities.
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