The Superinvestors of Graham-and-Doddsville

"The Superinvestors of Graham-and-Doddsville" is an article by Warren Buffett promoting value investing, published in the Fall, 1984 issue of Hermes, Columbia Business School magazine. It was based on a speech given on May 17, 1984, at the Columbia University School of Business in honor of the 50th anniversary of the publication of Benjamin Graham and David Dodd's book Security Analysis. The speech and article challenged the idea that equity markets are efficient through a study of nine successful investment funds generating long-term returns above the market index. All these funds were managed by Benjamin Graham's alumni, pursuing different investment tactics but following the same "Graham-and-Doddsville" value investing strategy.

Columbia Business School arranged celebration of Graham–Dodd's jubilee as a contest between Michael Jensen, a University of Rochester professor and a proponent of efficient-market theory, and Buffett, who was known to oppose it. Jensen argued that a simple coin tossing experiment among a large number of investors would generate a few successive winners, and the same happens in real financial markets. Buffett grabbed Jensen's metaphor and started his own speech with the same coin tossing experiment. There was one difference, he noted: somehow, a statistically significant share of the winning minority belongs to the same school. They follow value investing rules set up by Graham and Dodd.

Buffett starts the article with a rebuttal of a popular academic opinion that Graham and Dodd's approach ("look for values with a significant margin of safety relative to [stock] prices") had been made obsolete by improvements in market analysis and information technology. If the markets are efficient, then no one can beat the market in the long run; and apparent long-term success can happen by pure chance only. However, argues Buffett, if a substantial share of these long-term winners belong to a group of value investing adherents, and they operate independently of each other, then their success is more than a lottery win; it is a triumph of the right strategy.

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