One of the students in the fall of 1927
was David L. Dodd, then an assistant
professor in the School of Business
at Columbia. He was to become my
co-adjutor in teaching, the co-author
of our “Bible of Wall Street,” Security
Analysis, an associate in important
financial ventures, and an unfailingly
loyal friend.
PhD Dissertation (1930)
During the late 1920s, Dodd continued
to teach and study at Columbia, in collaboration
with Ben Graham. In 1930, he
was awarded his PhD degree. His dissertation,
entitled “Stock Watering: The Judicial
Valuation of Property for Stock-Issue Purposes,”
was published as a 330-page book
by Columbia University Press. He defined
stock watering “as the issuance of nominally
fully paid stock in an amount exceeding
the value of the assets against which
the stock has been issued.” His dissertation
seeks to “answer the question as to
what the courts mean by ‘value’ when they
interpret the laws which require that stock
must be issued for property or services at a
fair valuation.” The issue was complicated
by the existence of both historical par value
and newly popular non-par value shares
issued by different companies.
Dodd’s conclusion for non-par value
shares was to propose a series of minimum
requirements for companies issuing
stock. These included an independent
audit, a balance sheet valuation, an annual
balance sheet, annual profit and loss statements
and a prospectus. Upon completion
of his dissertation and publication of his
book, Dodd was promoted to assistant
professor.
Security Analysis (1934)
Ben Graham reflects in his memoirs
that in the “trying times of 1930–32, I kept
busy with many activities… I continued
to give my course at Columbia, though
to much smaller classes, and in 1932 I set
definitely to work on the textbook that
I had first projected in the lush times of
1927.” He continues:
I asked Dave Dodd to collaborate with
me on the book. We agreed that I
would be the senior author and write
the entire text in my style. He would
aid with suggestions and criticisms,
would check the numerous facts and
references, and work up the tables.
We prepared a table of contents and
a sample first chapter, and submitted
them to McGraw-Hill & Company
through Hugh Kelly, a bright young
employee who had been one of our
students. (He later became McGraw’s
vice president.) McGraw submitted
our material to their reader, a Harvard
professor of finance. As an exception
to the rule, we were shown his report,
which was very favorable—his only
doubt being whether we would have
the stamina to carry the ambitious
work to a conclusion. McGraw-Hill
was so impressed with his recommendation
that they offered us a straight
15% royalty, instead of the sliding scale
that usually started at 10%. Dodd and
I agreed to divide the royalties threefifths
to me and two-fifths to him.
The contract was signed at the end of
1932, but it was to take a year and a
half before the first edition of Security
Analysis made its appearance.
Roger F. Murray, Ben Graham and
David Dodd’s successor at Columbia, has
a slightly different recollection of their
relationship. In an interview with Peter
Tanous, in his book Investment Gurus,
Murray looked back to the period of
1956–61, when he and Dodd were both
professors at Columbia Business School.
He describes the textbook as an “interesting
joint product,” admitting that “Ben
Graham was not addicted to writing a
serious text. He was full of ideas, loved to
chat, loved to think out loud. David Dodd
sat in on Ben’s classes and took copious
notes. Then Dave would go dig out and
verify the examples that Ben had used.
That’s how the first edition of Security
Analysis came about in 1934.”
Graham and Dodd: A True Partnership
In addition to describing their working
dynamic to Tanous, in the same interview
Murray remembers Graham and Dodd’s
complementary personalities:
[Ben Graham was] just exactly the
way he was pictured—a man who
read for background, a fine classical
scholar, a man with an idea a minute.
He had a wonderfully agile mind.
Dave Dodd was a wonderful gentleman.
He was one of the finest people
I have ever met anywhere. He could
listen to Ben all day long, but retained
a healthy skepticism, and when Ben
would launch into one of his ideas,
which came along about every thirty
seconds, Dave would quietly just sit
down and say, that’s an interesting
idea, Ben. However, do you believe
that the facts really support that strong
a conclusion? Then, he’d get to work
on the serious analysis.
As demonstrated in the recollections by
both Graham and Murray, Graham and
Dodd were true partners. This partnership
was evident not only in their academic
collaboration, but also in their business
ventures: Graham-Newman Corporation
and GEICO. Their relationship extended
until Graham’s passing in 1976.
Graham-Newman Corporation
(1936–1957)
The Graham-Newman Corporation
was an investment company originally
founded in 1926 as the Benjamin Graham
Joint Account, with a capital base of
$400,000. Jerry Newman, an acquaintance
who graduated from Columbia College
and Law School, joined him as a partner in
the first year. Graham recalls that Newman
was invaluable. “He was much better than
I at the details of a commercial operation.
He was shrewd and effective at negotiating
deals of all sorts and was completely honest
and dependable—qualities essential for
lasting success in Wall Street. However,
he was not a theoretician nor especially
inventive in the field of finance.”
Three years later, the capital had
increased to $2,500,000 mostly from profits.
In 1936, its legal form was changed
from a “quasi-partnership” to a corporation,
the Graham-Newman Corporation,
in order to comply with IRS tax regulations.
Dodd became a director of the corporation
in 1944, a post he held until the
liquidation of the fund in 1957.
By 1946, after 10 years of operation, the
net asset value of the fund increased to
$4,172,000. This represented a 17.6% net
annual return after fees and expenses, as
compared to 10.1% for the S&P Index.
In 1951, Dodd and his wife held 90 shares
of stock in the corporation. Each share was
worth $1,232 for a total of $110,880. Graham
and his wife owned 252 shares for a
total of $310,464. In addition, Graham and
12 FINANCIAL HISTORY | Summer 2020 | www.MoAF.org