David LeFevre Dodd (August 23, 1895 – September 18, 1988) was an American educator, financial analyst, author, economist, and investor. In his student years, Dodd was a ' and colleague of
Benjamin Graham at
Columbia Business School
Columbia Business School (CBS) is the business school of Columbia University, a private research university in New York City. Established in 1916, Columbia Business School is one of six Ivy League business schools and is one of the oldest bus ...
.
The
Wall Street Crash of 1929
The Wall Street Crash of 1929, also known as the Great Crash, was a major American stock market crash that occurred in the autumn of 1929. It started in September and ended late in October, when share prices on the New York Stock Exchange coll ...
(Black Tuesday) almost wiped out Graham, who had started teaching the year before at his
alma mater, Columbia. The
crash
Crash or CRASH may refer to:
Common meanings
* Collision, an impact between two or more objects
* Crash (computing), a condition where a program ceases to respond
* Cardiac arrest, a medical condition in which the heart stops beating
* Couch ...
inspired Graham to search for a more conservative, safer way to invest. Graham agreed to teach with the stipulation that someone take notes. Dodd, then a young instructor at Columbia, volunteered. Those transcriptions served as the basis for a 1934 book ''
Security Analysis
Security analysis is the analysis of tradeable financial instruments called securities. It deals with finding the proper value of individual securities (i.e., stocks and bonds). These are usually classified into debt securities, equities, or s ...
'', which galvanized the concept of
value investing. It is the longest running investment text ever published.
Early life and education
In 1916, Dodd graduated from High Street School, a high school in
Martinsburg, West Virginia, where his father was the principal. In 1920, he completed his
Bachelor of Science
A Bachelor of Science (BS, BSc, SB, or ScB; from the Latin ') is a bachelor's degree awarded for programs that generally last three to five years.
The first university to admit a student to the degree of Bachelor of Science was the University o ...
, at
University of Pennsylvania
The University of Pennsylvania (also known as Penn or UPenn) is a Private university, private research university in Philadelphia. It is the fourth-oldest institution of higher education in the United States and is ranked among the highest- ...
. One year later, he received his
Master of Science
A Master of Science ( la, Magisterii Scientiae; abbreviated MS, M.S., MSc, M.Sc., SM, S.M., ScM or Sc.M.) is a master's degree in the field of science awarded by universities in many countries or a person holding such a degree. In contrast t ...
at
Columbia University
Columbia University (also known as Columbia, and officially as Columbia University in the City of New York) is a private research university in New York City. Established in 1754 as King's College on the grounds of Trinity Church in Manhatt ...
.
Academic life
From 1922 to 1925, Dodd was an instructor of economics at
Columbia University
Columbia University (also known as Columbia, and officially as Columbia University in the City of New York) is a private research university in New York City. Established in 1754 as King's College on the grounds of Trinity Church in Manhatt ...
. From 1925 to 1930, he became an instructor of finance. From 1926 to 1945, he was in charge of the business and economics courses. In 1930, he received his
PhD PHD or PhD may refer to:
* Doctor of Philosophy (PhD), an academic qualification
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* '' PhD: Phantasy Degree'', a Korean comic series
* '' Piled Higher and Deeper'', a web comic
* Ph.D. (band), a 1980s British group
** Ph.D. (Ph.D. al ...
from Columbia University. From 1930 to 1938, Dodd was an assistant professor there, from 1938 to 1947 an associate professor, and from 1947 to 1961 a full professor. From 1948 to 1952, he was associate dean at the
Columbia Business School
Columbia Business School (CBS) is the business school of Columbia University, a private research university in New York City. Established in 1916, Columbia Business School is one of six Ivy League business schools and is one of the oldest bus ...
. In 1961, he retired as
professor emeritus
''Emeritus'' (; female: ''emerita'') is an adjective used to designate a retired chair, professor, pastor, bishop, pope, director, president, prime minister, rabbi, emperor, or other person who has been "permitted to retain as an honorary title ...
in finance at Columbia University. On May 17, 1984, on the 50th anniversary of publishing ''
Security Analysis
Security analysis is the analysis of tradeable financial instruments called securities. It deals with finding the proper value of individual securities (i.e., stocks and bonds). These are usually classified into debt securities, equities, or s ...
,''
Michael I. Sovern, president of
Columbia University
Columbia University (also known as Columbia, and officially as Columbia University in the City of New York) is a private research university in New York City. Established in 1754 as King's College on the grounds of Trinity Church in Manhatt ...
, awarded Dodd a
Doctor of Letters, an honorary degree, for applying financial theories with brilliant results in a highly competitive world of investments. Columbia President
Michael Sovern
Michael Ira Sovern (December 1, 1931 – January 20, 2020) was the 17th president of Columbia University. Prior to his death, he served as the Chancellor Kent Professor of Law at Columbia Law School. He was a noted legal scholar of Labor Law an ...
bestowed the honor during Columbia's 230th
commencement exercises.
Dodd was a member of the following organizations:
American Economic Association
The American Economic Association (AEA) is a learned society in the field of economics. It publishes several peer-reviewed journals acknowledged in business and academia. There are some 23,000 members.
History and Constitution
The AEA was esta ...
,
Social Science Research Council
The Social Science Research Council (SSRC) is a US-based, independent, international nonprofit organization dedicated to advancing research in the social sciences and related disciplines. Established in Manhattan in 1923, it today maintains ...
(investment committee 1950–1956),
American Finance Association (vice president 1946–1947),
New York Society of Security Analysts
New is an adjective referring to something recently made, discovered, or created.
New or NEW may refer to:
Music
* New, singer of K-pop group The Boyz
Albums and EPs
* ''New'' (album), by Paul McCartney, 2013
* ''New'' (EP), by Regurgitator, ...
,
Beta Gamma Sigma
Beta Gamma Sigma () is the International Business Honor Society. Founded in 1913 at the University of Wisconsin, University of Illinois and the University of California, it has over 980,000 members, selected from more than 600 collegiate chapters ...
,
Phi Gamma Delta,
Alpha Kappa Psi
Alpha Kappa Psi (, often stylized as AKPsi) is the oldest and largest business fraternity to current date. Also known as "AKPsi", the fraternity was founded on October 5, 1904, at New York University and was incorporated on May 20, 1905. It is c ...
, and
Phi Chi Theta
Phi Chi Theta ( or PCT) is one of the largest co-ed professional business fraternities in the United States. Phi Chi Theta was founded as a women's business fraternity on , in Chicago, Illinois. Today, Phi Chi Theta comprises 41 collegiate and al ...
.
At the time of his death, various editions of the book he coauthored, ''Security Analysis,'' had sold over 250,000 copies.
Professional life
From 1917 to 1919, he was in the
US Navy
The United States Navy (USN) is the maritime service branch of the United States Armed Forces and one of the eight uniformed services of the United States. It is the largest and most powerful navy in the world, with the estimated tonnage ...
during
World War I
World War I (28 July 1914 11 November 1918), often abbreviated as WWI, was List of wars and anthropogenic disasters by death toll, one of the deadliest global conflicts in history. Belligerents included much of Europe, the Russian Empire, ...
; rising from
boatswain
A boatswain ( , ), bo's'n, bos'n, or bosun, also known as a deck boss, or a qualified member of the deck department, is the most senior rate of the deck department and is responsible for the components of a ship's hull. The boatswain supervis ...
to
lieutenant
A lieutenant ( , ; abbreviated Lt., Lt, LT, Lieut and similar) is a commissioned officer rank in the armed forces of many nations.
The meaning of lieutenant differs in different militaries (see comparative military ranks), but it is often ...
. From 1921 to 1922, he was research assistant for an economist at National Bank of Commerce, New York (now part of
JPMorgan Chase
JPMorgan Chase & Co. is an American multinational investment bank and financial services holding company headquartered in New York City and incorporated in Delaware. As of 2022, JPMorgan Chase is the largest bank in the United States, t ...
Bank,
National Association; se
NYS banking history here. In 1928, he advised private clients on investments. From 1950 to 1958, he was Limited partner, Newman & Graham Ltd. (an unregulated
hedge fund
A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as ...
). From 1958 to 1959, he was general partner, Graham-Newman & Co. (a regulated
investment trust formed in 1929).
Value investing
The phrases "Graham and Dodd," "
value investing," "
margin of safety," and "
intrinsic value"—all biblical to value investors—are often used interchangeably when referring to an approach to investing. Despite the onset of
modern portfolio theory (MPT) in the late 1950s—a theory that peaked throughout the 80s, gaining
Nobel
Nobel often refers to:
*Nobel Prize, awarded annually since 1901, from the bequest of Swedish inventor Alfred Nobel
Nobel may also refer to:
Companies
*AkzoNobel, the result of the merger between Akzo and Nobel Industries in 1994
*Branobel, or ...
recognition in 1990 (co-laureates:
Harry Markowitz,
Merton Miller
Merton Howard Miller (May 16, 1923 – June 3, 2000) was an American economist, and the co-author of the Modigliani–Miller theorem (1958), which proposed the irrelevance of debt-equity structure. He shared the Nobel Memorial Prize in Economic ...
,
William F. Sharpe)—Value Investing proved to be a formidable style that sharply defied
MPT. The
University of Chicago
The University of Chicago (UChicago, Chicago, U of C, or UChi) is a private research university in Chicago, Illinois. Its main campus is located in Chicago's Hyde Park neighborhood. The University of Chicago is consistently ranked among the b ...
was at the center of MPT (see "
quantitative analyst") while
Columbia
Columbia may refer to:
* Columbia (personification), the historical female national personification of the United States, and a poetic name for America
Places North America Natural features
* Columbia Plateau, a geologic and geographic region i ...
has been the
Mecca
Mecca (; officially Makkah al-Mukarramah, commonly shortened to Makkah ()) is a city and administrative center of the Mecca Province of Saudi Arabia, and the holiest city in Islam. It is inland from Jeddah on the Red Sea, in a narrow v ...
for Value Investing for decades.
Value Investors see securities as either priced correctly, under-priced, or over-priced. In contrast, MPT proponents insist that, by definition under the
efficient-market hypothesis, a realized price of a stock is the correct price. Value investor purists reject the usefulness of
capital asset pricing model (CAPM), in part, because it wrongly
extrapolate
In mathematics, extrapolation is a type of estimation, beyond the original observation range, of the value of a variable on the basis of its relationship with another variable. It is similar to interpolation, which produces estimates between kn ...
s historical volatility as a
proxy
Proxy may refer to:
* Proxy or agent (law), a substitute authorized to act for another entity or a document which authorizes the agent so to act
* Proxy (climate), a measured variable used to infer the value of a variable of interest in climate re ...
for
risk
In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environm ...
. For example, if equity prices of a company fell 75%, assuming the underlying fundamentals of the company were solid, an MPT practitioner would view it as volatile (risky); whereas, a value investor would determine whether it was undervalued, and if so, buy it, reasoning that the resulting downward risk is less than before. Therefore, value investors see MPT metrics—such as
standard deviation,
beta
Beta (, ; uppercase , lowercase , or cursive ; grc, βῆτα, bē̂ta or ell, βήτα, víta) is the second letter of the Greek alphabet. In the system of Greek numerals, it has a value of 2. In Modern Greek, it represents the voiced labiod ...
(relative standard deviation),
alpha
Alpha (uppercase , lowercase ; grc, ἄλφα, ''álpha'', or ell, άλφα, álfa) is the first letter of the Greek alphabet. In the system of Greek numerals, it has a value of one. Alpha is derived from the Phoenician letter aleph , whi ...
(excess return), and the
Sharpe ratio (risk adjusted return)—as inadequate and even misleading.
Columbia resisted de-emphasizing Value Investing during the throes of the MPT renaissance, but the appeal of MPT seemed to be part of a larger movement, thrusting finance aspects of business education into higher echelons of academia. During about a 25-year period (1965–90), published research and articles in leading journals of the value ilk were few.
Warren Buffett once commented, "You couldn't advance in a finance department in this country unless you taught that the world was flat." Shortly after the death of David Dodd in 1988,
Bruce Greenwald
Bruce Corman Norbert Greenwald (born August 15, 1946), is a professor at Columbia University's Graduate School of Business and an advisor at First Eagle Investment Management. He is, among others, the author of the books ''Value Investing: f ...
, a star professor at
CBS, took a keen interest in Value Investing. He found the overwhelming success of Value investors difficult to dismiss. At the same time, reliable data that fortified Value Investing was solidifying, while MPT was showing some flaws. Professor Greenwald invigorated the academic aspects of what many in
ivory tower
An ivory tower is a metaphorical place—or an atmosphere—where people are happily cut off from the rest of the world in favor of their own pursuits, usually mental and esoteric ones. From the 19th century, it has been used to designate an e ...
s erstwhile treated as a vocational discipline.
MPT pundits argue that the Warren Buffett's long-term record is a
statistical
Statistics (from German: '' Statistik'', "description of a state, a country") is the discipline that concerns the collection, organization, analysis, interpretation, and presentation of data. In applying statistics to a scientific, industr ...
three- to
five-sigma event—that is, his success is probable, but not replicable with certainty.
[Buffett Partnership, Ltd., a limited investment partnership Buffett managed from 1957 to 1969, beat the ]Dow Jones Industrial Average
The Dow Jones Industrial Average (DJIA), Dow Jones, or simply the Dow (), is a stock market index of 30 prominent companies listed on stock exchanges in the United States.
The DJIA is one of the oldest and most commonly followed equity inde ...
every year of its existence, achieving a cumulative return of 2,749.9% relative to the DJIA's 152.6%. Berkshire Hathaway Inc., a onetime beleaguered textile company that Buffett acquired in 1965 and transformed into an investment vehicle, beat the pre-tax total return of the S&P 500
The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices. As of ...
in 36 of 41 years, achieving an after-tax cumulative return of 305,134% relative to the S&P 500
The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices. As of ...
's pre-tax total return (with reinvested dividends
A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-in ...
) of 5,583%. Nobel Laureate William F. Sharpe dismissed Buffett's success as a three sigma event—a statistical aberration absurdly out of line.
Yet the success of numerous other investment funds and practitioners who applied
value investing theories weakened assertions attributing success to
chance. Because Value Investing rejects MPT and its use of sophisticated
statistics
Statistics (from German: '' Statistik'', "description of a state, a country") is the discipline that concerns the collection, organization, analysis, interpretation, and presentation of data. In applying statistics to a scientific, indust ...
, there's irony when MPT theorists attribute its success to
tails of
standard deviation.
Bruce Greenwald
Bruce Corman Norbert Greenwald (born August 15, 1946), is a professor at Columbia University's Graduate School of Business and an advisor at First Eagle Investment Management. He is, among others, the author of the books ''Value Investing: f ...
overhauled and relaunched the Value Investing curriculum at Columbia in the spring of 1994. Today, Value Investing enjoys broad appeal among academicians and investors around the world. Professor Greenwald is the Robert Heilbrunn Professor of Finance and
Asset Management
Asset management is a systematic approach to the governance and realization of value from the things that a group or entity is responsible for, over their whole life cycles. It may apply both to tangible assets (physical objects such as buildings ...
at
Columbia University
Columbia University (also known as Columbia, and officially as Columbia University in the City of New York) is a private research university in New York City. Established in 1754 as King's College on the grounds of Trinity Church in Manhatt ...
's
Graduate School of Business.
Personal life
On August 9, 1924, he married Elsie Marguerite Firor (b. Mar 22, 1898 — d. 22 June 2001).
David Dodd died September 18, 1988, aged 93, of
respiratory failure at
Maine Medical Center,
Portland, Maine. At the time he was living on
Chebeague Island, Maine
Chebeague Island is located in Casco Bay, an inlet of the Gulf of Maine. It was originally used as a fishing ground by Abenaki Native Americans. Also known as Great Chebeague (pronounced "sha-big") Island, today it is a town in Cumberland Count ...
in Casco Bay.
His daughter, Barbara Dodd Anderson (1932–2010) lived in Northern California and was a benefactor of the
Heilbrunn Center for Graham and Dodd Investing.
Bibliography
*
Benjamin Graham & David Dodd (2008) ''
Security Analysis: Sixth Edition, Foreword by Warren Buffett'', McGraw-Hill Professional.
* David LeFevre Dodd, ''
Stock Watering: the judicial valuation of property for stock-issue purposes'' (January 1, 1930),
Columbia University Press
Columbia University Press is a university press based in New York City, and affiliated with Columbia University. It is currently directed by Jennifer Crewe (2014–present) and publishes titles in the humanities and sciences, including the fie ...
References
{{DEFAULTSORT:Dodd, David
1895 births
1988 deaths
20th-century American economists
American economics writers
American male non-fiction writers
American finance and investment writers
American financial analysts
American investors
American money managers
American stock traders
Columbia Business School faculty
Columbia University alumni
Educators from West Virginia
People from Berkeley County, West Virginia
Writers from Portland, Maine
Stock and commodity market managers
University of Pennsylvania alumni
Economists from Maine
Economists from West Virginia
20th-century American male writers