Why Warren Buffett Still Uses Benjamin Graham's Strategy (And You Should Too)

In 1950, a 20-year-old kid from Omaha, Nebraska applied to Columbia Business School for one reason: to study under Benjamin Graham.

That kid was Warren Buffett. And that decision changed the trajectory of investing history.

Today, Buffett is worth over $130 billion. Berkshire Hathaway, his holding company, has delivered an average annual return of approximately 20% since 1965 — more than double the S&P 500. He's widely regarded as the greatest investor who ever lived.

And when asked about his success, Buffett keeps pointing back to the same source: Benjamin Graham.

"The two most important investment books ever written are The Intelligent Investor and Security Analysis," Buffett has said. "I've been following Graham's teachings for 65 years, and I've never found a reason to change."

But here's the real question: do Graham's 70-year-old principles still work in today's market?

The answer is a resounding yes. Here's why.

The Teacher and the Student

Benjamin Graham didn't just teach Buffett stock picking. He taught him a way of thinking about markets, risk, and value that became the foundation of everything Buffett has done since.

What Graham Taught Buffett

Every stock is a piece of a real business. Not a ticker symbol. Not a chart pattern. A living, breathing business with employees, customers, products, and profits. When you buy a stock, you're buying ownership of that business.
Mr. Market is your servant, not your master. The market's daily price swings are opportunities to exploit, not signals to follow. When Mr. Market panics, that's your buying opportunity. When he's euphoric, that's your cue to be cautious.
Margin of safety is everything. Never pay full price. Always insist on buying at a meaningful discount to intrinsic value. This single concept has saved Buffett from countless mistakes.
Be fearful when others are greedy, and greedy when others are fearful. This famous Buffett quote is pure Graham philosophy dressed in Berkshire clothing.

How Buffett Uses Graham's Principles Today

Some people think Buffett evolved past Graham's teachings. That's partially true — he added new dimensions to the approach. But the core framework remains Graham through and through.

The Graham Foundation: Intrinsic Value

Every investment Buffett makes starts with one question: What is this business actually worth?

He doesn't care about stock charts. He doesn't care about momentum. He doesn't care what the market thinks the stock will do next week. He calculates what the business is worth based on its earnings, cash flow, competitive position, and growth prospects — and he only buys when the price is below that value.

This is textbook Graham.

When Buffett bought Apple shares starting in 2016, it wasn't because the stock was trendy. It was because he calculated that Apple's earnings power, brand loyalty, and ecosystem made it worth significantly more than the market was charging. He was buying dollars for 50 cents — Graham's favorite concept.

The Buffett Addition: Economic Moats

Where Buffett expanded on Graham was in the concept of quality. Graham focused primarily on quantitative factors — P/E ratios, book value, asset coverage. He was looking for statistically cheap stocks.

Buffett, influenced by his partner Charlie Munger, added a qualitative layer: the economic moat. He wanted businesses that weren't just cheap but were durable — companies with competitive advantages so strong that competitors couldn't easily erode their profits.

This led Buffett to invest in companies like:

Coca-Cola — Brand power so strong that no competitor can truly challenge it
American Express — Network effects that make it more valuable as more merchants accept it
Apple — An ecosystem so sticky that switching costs keep customers loyal for life

Graham would have approved. He always said the ideal investment was a good business at a fair price — or better yet, a good business at a bargain price.

The Dividend Connection

Buffett loves dividends — both receiving them and the companies that pay them.

Berkshire Hathaway's top holdings are dominated by dividend payers:

Apple — pays ~$15 billion/year in dividends
Coca-Cola — Buffett's original shares, bought in 1988 for $1.3 billion, now generate over $700 million/year in dividends
Chevron — 39 years of consecutive dividend increases, 3.64% yield
American Express — decades of dividends

Buffett's Coca-Cola investment perfectly illustrates the power of dividend growth. He invested $1.3 billion in 1988. Today, those shares pay him over $700 million per year in dividends alone. His yield on cost — the dividend income relative to his original investment — is over 50% per year.

He's earning back more than half his original investment every single year. In dividends alone. Without selling a single share.

This is the Graham philosophy in action: buy quality at a fair price, hold forever, and let the income compound.

The 5 Graham Principles Buffett Uses Daily

Principle 1: Focus on Earnings Power

Graham taught that a company's value is primarily determined by its ability to generate earnings over time. Not hype. Not potential. Actual, demonstrated earnings.

Buffett to this day avoids companies without clear earnings power. He famously avoided the dot-com bubble in the late 1990s because the companies had no profits. He was mocked at the time — until the bubble burst and those companies went to zero.

Principle 2: Insist on a Margin of Safety

"Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1."

This isn't about never having a losing investment. It's about never overpaying. When you buy with a margin of safety, even your mistakes are limited. When you overpay, even good businesses can become bad investments.

Principle 3: Ignore Market Noise

Buffett doesn't have a stock terminal in his office. He doesn't watch CNBC. He reads annual reports, 10-K filings, and industry publications. He makes decisions based on business fundamentals, not market commentary.

Graham's Mr. Market metaphor is alive and well in Omaha.

Principle 4: Think Long-Term

"Our favorite holding period is forever." Another Buffett quote that's pure Graham DNA.

Graham advocated buying undervalued businesses and holding them until they reached fair value — or indefinitely if the business kept performing. Buffett took this even further: he holds great businesses essentially forever, letting compound growth work its magic over decades.

Principle 5: Stay Within Your Circle of Competence

Graham warned against investing in businesses you don't understand. Buffett formalized this as the "circle of competence" — only invest in industries and companies you genuinely understand.

This is why Buffett was late to technology stocks and why he avoided crypto entirely. Not because these are bad investments — but because they were outside his circle. He'd rather miss a good opportunity than make a bad bet in unfamiliar territory.

"But the Market Has Changed!" — Why Graham's Principles Are Timeless

Every few years, someone declares that value investing is dead. They said it during the dot-com bubble. They said it during the 2020 growth stock mania. They say it whenever a handful of high-flying stocks outperform everything else.

And every time, value investing comes back. Here's why the principles are timeless:

Human Psychology Doesn't Change

Markets are driven by fear and greed. These emotions haven't changed since the Dutch Tulip Mania of 1637, and they won't change in 2026 or 2126. As long as humans oscillate between panic and euphoria, there will be opportunities to buy good businesses at bad prices.

Math Doesn't Change

A company's value is ultimately determined by its cash flows. The math of intrinsic value — earnings, growth, and discount rates — doesn't care whether we're in the age of railroads or artificial intelligence. Cash flow is cash flow.

Mean Reversion Is Real

Overvalued stocks eventually come down. Undervalued stocks eventually rise. This tendency — called mean reversion — is one of the most well-documented phenomena in finance. Graham built his entire strategy around it, and the data continues to support it.

How You Can Apply the Buffett-Graham Approach

You don't need $130 billion to invest like Buffett. You need his process:

1. Read Annual Reports, Not Headlines

Pick 5 companies you're interested in. Download their annual reports (10-K filings) from the SEC website. Read the CEO's letter and the financial statements. This puts you ahead of 95% of individual investors who never read a single filing.

2. Calculate Intrinsic Value

Use Graham's formula (V = EPS x (8.5 + 2g) x 4.4/Y) as a starting point. Then layer in Buffett's qualitative analysis — does this company have a moat? Is management competent and honest? Is the business easy to understand?

3. Wait for Your Pitch

Buffett compares investing to baseball with no called strikes. You can stand at the plate and watch a thousand pitches go by without swinging. You don't have to invest in anything. Wait for the fat pitch — the obvious undervaluation — and then swing hard.

4. Build a Portfolio of 10-20 Quality Companies

Diversify, but not too much. Graham recommended 10-30 stocks. Buffett has said that for individual investors, 10-20 well-understood companies is ideal. You want enough diversification to protect against individual company risk, but not so much that you're basically buying an index fund with more effort.

5. Hold and Compound

Once you've bought quality businesses at good prices, hold them. Reinvest dividends. Add new money. Let compound growth work. Check your portfolio quarterly, not daily.

Real-World Proof: Berkshire vs. The S&P 500

Since 1965, Berkshire Hathaway's per-share market value has increased approximately 4,384,748% compared to the S&P 500's 31,223% (including dividends). That's not a typo.

$1,000 invested in Berkshire in 1965 would be worth approximately $43 million today. The same $1,000 in the S&P 500 would be worth about $312,000.

Both are impressive. But Buffett's approach — rooted in Graham's principles — delivered 140 times more wealth than simply owning the market.

You won't replicate Buffett's exact returns. Nobody will. But you don't need to. Even a fraction of that outperformance, applied consistently over decades, creates life-changing wealth.

The Bottom Line

Benjamin Graham created the playbook. Warren Buffett perfected it. And the beauty of value investing is that the playbook is available to everyone.

You don't need connections. You don't need an MBA. You don't need a Bloomberg Terminal. You need:

The ability to read basic financial statements
A formula to estimate intrinsic value
The discipline to wait for a good price
The patience to hold for decades

That's it. The same strategy that turned Warren Buffett into the world's most successful investor is available to you — for the price of a library card and a brokerage account.

Wall Street makes investing seem complicated because complexity is profitable for them. The truth is simpler than they want you to believe.

Buy good businesses at fair prices. Hold them forever. Collect dividends. Repeat.

Benjamin Graham wrote those rules. Warren Buffett proved they work. Your turn.

Join Poor Man's Stocks for weekly Graham-style stock analysis, dividend picks, and value investing strategies — all designed for the everyday investor.

This is educational content, not financial advice. Historical performance data from Berkshire Hathaway annual reports and publicly available sources. Past performance does not guarantee future results. Always do your own research before making investment decisions.