How was Warren Buffett influenced by Benjamin Graham's ideas?

Okay, let's talk about Buffett and his teacher, Graham.

If Buffett is the "Oracle of Omaha" in the investment world, then Benjamin Graham is the teacher of the "oracle." Buffett himself has said that 85% of his investment philosophy comes from Graham, with the remaining 15% coming from Philip Fisher (another investment master). It's fair to say that without Graham, there would be no Warren Buffett as we know him today.

Graham's influence on Buffett can be distilled into three core "principles," which essentially form the bedrock of Buffett's investment career.

Principle 1: Mr. Market

This is one of Graham's most brilliant metaphors, and it's incredibly relatable.

Picture this: You have a business partner named "Mr. Market." He comes to you every day and offers you a price, saying he's either willing to buy your share of the business at that price or sell you his share.

This "Mr. Market" has a significant flaw: he is emotionally unstable.

• When he's euphoric (in a bull market), he offers a ridiculously high price, acting as if your business is the best in the world.
• When he's depressed (in a bear market), he offers a laughably low price, acting as if your business is going bankrupt tomorrow.

Graham's wisdom lies here: You don't have to listen to "Mr. Market"! He is merely your servant, not your guide.

• When he quotes a foolishly low price, you should be happy to buy from him.
• When he quotes an insanely high price, you should be happy to sell to him.
• If his price doesn't make sense, you can just ignore him and go about running your business.

What did Buffett learn? Buffett fully grasped this lesson. He views the stock market as a tool to be used, not an authority dictating his actions. That's why you see Buffett often buying greedily when the market panics and everyone else is selling. He's not trying to catch a falling knife; he's taking advantage of Mr. Market's panic to buy good companies at bargain prices.

Principle 2: Margin of Safety

This is the soul of value investing and the core of Graham's philosophy.

Simply put: Buy a dollar's worth of assets for fifty cents.

For example: After careful calculation, you determine that the true intrinsic value of a company is $100 per share. But currently, for some reason, the market price is only $50. The $50 difference between these prices is your Margin of Safety.

What's the point?

1. Risk Mitigation: Your calculations might be wrong, or the company might face unexpected difficulties in the future. This significant price difference acts as a buffer. Even if the company's value isn't as high as you thought (say, only $80), your purchase price ($50) is still low, drastically reducing your probability of loss.
2. Providing Returns: Once the market regains rationality and the price returns to its intrinsic value of $100, you achieve a 100% return on your investment.

What did Buffett learn? In his early career, Buffett was the most devoted practitioner of "Margin of Safety." He specifically hunted for companies trading far below their liquidation value – what Graham called investing in "cigarette butt stocks" (picking up discarded stocks like cigarette butts that might offer one last puff). He bought these stocks not because he believed in their future, but purely because they were dirt cheap, offering a huge margin of safety. This was key to him accumulating his first pot of gold.

Principle 3: Invest as If You Own the Business

Graham repeatedly stressed that buying a stock isn't buying a ticker symbol; it's buying a fractional ownership interest in a real business.

Think of it this way: What would you do if you were going to buy out that corner convenience store?

You'd certainly look into its customer traffic, daily revenues, profits, competition, and the competence of the manager. You would research it thoroughly as a serious business venture.

You should approach buying stocks with exactly the same mindset. You should read the company's financial reports, understand its business model, competitive advantages (moat), management capabilities, and so on.

What did Buffett learn? This principle profoundly impacted Buffett. He never chases market trends or buys a stock just because it's rising. All his investment decisions are based on a deep understanding of the underlying business itself. He asks himself: "If I had enough money, would I want to buy the entire company?" Only if the answer is "yes" will he buy shares in that company.

Buffett's Evolution: The Student Surpassed the Master

Of course, Buffett is Buffett precisely because he didn't just copy his teacher's homework. Under the influence of his partner, Charlie Munger, he significantly upgraded and evolved Graham's ideas.

• Graham focused more on "cheap": He favored buying mediocre companies ("cigarette butt stocks") that were trading at extremely low prices, relying on the large margin of safety.
• Buffett evolved to focus on "excellent": He later preferred "buying a wonderful company at a fair price" over "buying a fair company at a wonderful price."

He began focusing on great businesses with strong brands and wide "economic moats" (like Coca-Cola, American Express) and was willing to pay a price that, while not dirt cheap, was still reasonable for their exceptional quality. He realized that a great company continuously creates value, and the power of compound interest from long-term ownership far surpasses the gains from buying a cheap, mediocre company and waiting for its price to recover.

To Summarize

Graham gave Buffett an unshakable investment framework:

1. Mindset: Treat the market as a servant to be exploited (Mr. Market).
2. Method: Always seek a substantial Margin of Safety.
3. Perspective: Think and act like a business owner, not a speculator.

This framework allowed Buffett to remain rational and disciplined on his investment path, avoiding countless pitfalls. Building on this foundation, Buffett integrated a profound understanding of business quality and long-term thinking. This ultimately led to his own investment empire, cementing his status as the true "Oracle of Omaha".