Buffett mentored by professor Dodd

Who was David LeFevre Dodd?

He was an economist, financial analyst and finance professor for four decades at Columbia University, where he coauthored a classic book, Security Analysis, with colleague Benjamin Graham that laid out the case for value investing, a strategy that Warren Buffett later adopted and has made billions from.

Dodd, a graduate of the University of Pennsylvania, earned his master's and doctoral degrees at Columbia. He was a young instructor at Columbia in 1929 when Wall Street crashed. The crash prompted Graham, who had started teaching at Columbia the year before, to search for a more conservative, safer way to invest.

Dodd took notes while Graham lectured. Those notes served as the basis for Security Analysis. Published in 1934, the book became the bible for value investors. One of Graham and Dodd's students at Columbia was Warren Buffett, who earned a master's degree in economics in 1951.

Dodd later made millions from the value-investing approach because he invested in Buffett's Berkshire Hathaway Inc. early on and held onto the shares. Bloomberg News said Berkshire stock was trading at $18 a share when Buffett acquired control of it in 1965. The Nebraska company today is well-known as the most expensive stock. Its shares yesterday closed at $118,700, up $200.

In the early 20th century, investors were guided mostly by speculation and insider information. Graham thought the true value of a stock could be ascertained through research. He worked with Dodd to develop a methodology to identify and buy securities priced well below their true value. Despite volatile changes in the economy in recent decades, value investing has proved to be a successful strategy.

The Heilbrunn Center for Graham & Dodd Investing was established at Columbia in 2002 as a permanent home for value investing in the finance curriculum - and to educate new generations of investors.

"The book Security Analysis is the starting point of every investing course," said Erin Bellissimo, director of the center. "We still use that work to look at balance sheets and earnings quality in order to make investments that limit the downside risk."

In a telephone interview yesterday, Buffett recalled that after he studied at Penn between 1947 and 1949, then graduated from the University of Nebraska in 1950, he applied to and was turned down by the Harvard Business School.

Unsure of his next move, Buffett said he was so intrigued by the work of Graham and Dodd that he wrote to Dodd in August 1950 to ask if he could study with him at Columbia.

Buffett said Dodd got him admitted to Columbia, where the two began a friendship and business relationship that lasted until Dodd's death in 1988.

Dodd, born in 1895, joined the Columbia faculty in 1922. He became a full professor in 1947 and was associate dean of the Graduate School of Business from 1948 to 1952. He retired in 1961.

Buffett said that he had read Graham and Dodd's book many times and had even read it to his wife on their honeymoon in 1952.

"It might not seem romantic, but I felt she ought to read it," Buffett recalled.

He said the principles outlined in the seminal work "are as relevant today as they were 55 years ago."