Academic Finance vs Real-World Value Investing

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The consensus among practicing Value Investors seems to be that academic theories have little to do with the realities of the market.

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Benjamin Graham

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Benjamin Graham was a fund manager who taught and wrote in his spare time; and not an academic.

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Possibly his experience as an adjunct professor — and help from students such as David Dodd — put Graham in a unique position; a practicing fund manager who could develop, refine and document an encyclopedic investment framework.

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Warren Buffett

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In the preface to The Intelligent Investor, you can see Graham's student — Warren Buffett — explain how he never came across anyone else with a "mind of similar scope".

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Buffett has also explained in the past about how Graham was not interested in money, and was only interested in building a framework with which ordinary investors could achieve results similar to his own (Graham's).

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On Academia

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As far as the academic world goes, given below are some relevant notes from Warren Buffett's 1984 talk The Superinvestors of Graham-and-Doddsville.

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"If it doesn’t make any difference whether all of a business is being bought on a Monday or a Friday, I am baffled why academicians invest extensive time and effort to see whether it makes a difference when buying small pieces of those same businesses... I always find it extraordinary that so many studies are made of price and volume behavior, the stuff of chartists........ It isn’t necessarily because such studies have any utility; it’s simply that the data are there and academicians have worked hard to learn the mathematical skills needed to manipulate them."

Warren Buffett, Columbia Business School: The Superinvestors of Graham-and-Doddsville (1984) [PDF].

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Charlie Munger

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"Much of what is taught in modern corporate finance courses is twaddle... Modern portfolio theory involves a type of dementia I just can’t even classify... By the way, maybe that’s the reason there’s so much dementia. If you believed what Warren said, you could teach the whole course in about a week."

Charlie Munger, Berkshire Hathaway Annual Shareholders Meeting (1996).

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Buffett and Munger Explain

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On Academic Finance

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Buffett talks about the problems with Academic Finance, using Beta and Volatility again as examples; and also about the courses on the Graham approach to be introduced in the University of Florida.

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On B-Schools

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Buffett says at the Berkshire Hathaway 2018 Annual Shareholders Meeting that he would rather hire someone who understands Benjamin Graham over a top business school graduate.

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