Reading · Inside the Mind of Mojo

New to our Value Investing series? Start here: Ben Graham Was Wrong.

This series will prove uncomfortable reading for anyone who has built an identity around being a value investor, not least of all ourselves. This isn’t another “death of value” eulogy, nor is it a pile-on for sport. It emerged from our own reckoning with ideas we once found compelling, frameworks we trusted, and mistakes we made.

Successful investing is about having people agree with you … later.
—Jim Grant

Most self-described “value investors” are, in fact, speculators who simply refuse to admit the truth, least of all to themselves. After all, they have an identity to uphold. In sharp distinction to the unwashed masses chasing momentum and meme stocks, they are patient capital allocators performing—to borrow the immortal words of Lloyd Blankfein—God’s work: engaging in deep fundamental analysis to identify securities that Mr. Market, in his infinite irrationality, has priced below their “intrinsic value”.

Yet in reality, they wear the vestments of the priest to hide the soul of a gambler. The identity of the “value investor” serves primarily to protect the ego—providing intellectual cover for what is, fundamentally, a game of speculation.

When you buy a stock because you believe its intrinsic value is greater than its current price—and you have no mechanism to compel that gap to close—you are not investing. You are trading. You are speculating. Perhaps not to the same degree as a degen on r/WallStBets, but speculating nonetheless about the future behavior of the herd. Specifically, you are predicting that at some point, a greater fool will look at the same piece of paper and be willing to pay more for it than you did. Everything else is elaborate justification for what is, at its core, a speculative bet on crowd psychology.

Figuring out that a stock is “dirt cheap” does not an investment make—unless you can compel the market to agree with you. Without compulsion, you are not an investor: you are a supplicant kneeling before Mr. Market, hoping he notices what you’ve noticed, praying he agrees before you run out of patience or capital.

We will cover other faulty foundations of value investing elsewhere in this series, but here we focus on the assumption of price-value convergence: the belief that if you are correct in assessing the “intrinsic value”, the market will eventually agree with you. In the long run, Graham famously posited, markets are rational weighing machines that will eventually close the gap between price and this intrinsic value.

What Graham likely understood but never fully specified—and what his disciples rarely bother to ask—is this: under what conditions does Graham’s core assumption hold? In other words, when is Mr. Market a weighing machine—and what, exactly, is the mechanism that does the weighing?

The answer is that value investing tends to ‘work’ when two conditions hold: institutions—including the monetary system itself—must support it, and the intelligent investor must walk softly and carry a big stick. We prosecute the first condition elsewhere and in future essays; here we focus on the second.

The problem for modern value investors is that—unlike in Graham’s day—neither of these conditions generally hold today. Without an institutional backdrop that anchors prices to something “real” and a mechanism to compel price-value convergence, every stock is a “trading sardine”—not an eating sardine—regardless of how cheap it is.

Benjamin Graham is universally revered as the father of value investing. His disciples have distilled his methodology into a comfortable catechism: buy stocks trading below intrinsic value, hold patiently, and wait for Mr. Market’s weighing machine to close the gap. This is the Graham of legend: the patient sage, the intellectual priest of value investing analysis.

It is also largely fiction.

Benjamin Graham knew the weighing machine usually wasn’t enough: his actual operations, laid out in Security Analysis and elsewhere, made that plain. But his modern disciples generally performed a selective reading of Graham: extracting the valuation philosophy from The Intelligent Investor—Graham’s own mass market simplification—while discarding the rest scattered throughout his more demanding, and perhaps “boring”, professional work.

This distortion was then laundered through the Buffett mythology—the folksy Omaha sage holding stocks forever. This legend, however, bears little resemblance to reality: Buffett himself was a brawler and sophisticated arbitrageur in the same mold as his mentor Graham, until scale eventually forced him to abandon the tactics he used so successfully earlier in his career.

Graham sometimes did just buy cheap stocks and wait—but even then, his actual practice would be unrecognizable to most of his disciples, for he set explicit profit targets and walked away when the clock ran out:

The investor should have a definite selling policy for all his common stock commitments, corresponding to his buying techniques. Typically, he should set a reasonable profit objective on each purchase—say 50 to 100 per cent—and a maximum holding period for this objective to be realized—say, two to three years. Purchases not realizing the gain objective at the end of the holding period should be sold out at the market.

The real Benjamin Graham, however, more frequently trafficked in “special situations”: merger arbitrage, convertible arb, liquidations, and reorganizations—deals where the profit depended on a specific event that forced value realization rather than waiting for “Mr. Market” to agree. And when he did buy a “cheap stock” that wasn’t a special situation—and Mr. Market refused to cooperate—Graham wouldn’t hesitate to go activist. Graham didn’t just measure the weight on the scale; he frequently put his thumb on the scale—such as his famous battle with Northern Pipeline, in which he forced the board to distribute ‘hidden’ cash to shareholders rather than waiting for the market to notice it was there.

His modern disciples mostly kept the catechism and threw away the rest of Graham’s toolkit. They inherited the noun “value” and discarded the verbs—the acts of forcing, compelling, and engineering convergence between price and value that actually drove Graham’s most successful investments.

In short, they discarded Graham’s brass knuckles, and in the process turned much of what passes for modern value investing into a cargo cult: practitioners replicating the rituals of the original while having little understanding of the mechanisms that made it work.

To understand what has been lost as value investing has been watered down over the decades, we must analyze what Graham actually did with his capital and how his philosophy was formed. Graham’s brilliance—and his edge—was not in valuation, but rather process and structure.

In Value, Money, & Macro we traced his philosophy—if not his worldview—to a simple intuition formed during his childhood grocery shopping expeditions: buy cheap, take delivery, realize value immediately. The logic of Graham’s grocery analogy held for special situations because they shared a defining feature that ordinary equities do not: contractual obligations, legal mechanisms, or court-ordered timelines that mechanically drove price toward value within a defined time horizon. Graham himself made the distinction explicit:

At the outset of this article we grouped special situations and undervalued securities together. The reader will have noticed that we do not consider these terms as synonymous - although it may be held that special situations constitute a major subdivision of undervalued securities. The essence of a special situation is an expected corporate (not market) development, within a time period estimable in the light of past experience…

These strategies had long been practiced—savvy operators had been trading around mergers, liquidations, and reorganizations for decades—but they remained opportunistic and unsystematic, more craft than discipline. Graham’s contribution was to transform what had previously been a loose collection of tactics into a repeatable operating framework: he categorized them, treated them probabilistically, emphasized time-to-completion and annualized returns, and approached them as a business operation rather than a series of one-off coups.

Graham distinguished between situations in which a favorable outcome was merely possible versus those where the underlying corporate action was already in motion—signed, filed, or otherwise contractually or legally underway. It was this narrower class that he preferred, because it allowed the analyst to treat the investment as a bounded, probability-weighted operation with a defined path to resolution: outcomes driven by merger agreements, liquidation plans, or court proceedings rather than the whims of Mr. Market. In other words, he wasn’t interested in situations that might resolve. He focused on situations already governed by a process that would resolve.

Graham formalized special situations into a working taxonomy:

Class A: Standard arbitrages, based on a reorganization, recapitalization or merger plan
Class B: Cash payout, in recapitalization or mergers
Class C: Cash payments on sale or liquidation
Class D: Litigated matters
Class E: Public utility breakups
Class F: Miscellaneous special situations

Graham’s exact groupings varied somewhat across editions of Security Analysis and his other writings; the most detailed treatment appears in the 1951 edition of Security Analysis. But the point is clear: long before The Intelligent Investor recast him as a guide for passive, individual minority shareholders, Graham built his early fortune—and his reputation—by systematizing these special situation strategies into a disciplined, repeatable strategy.

Graham himself described the operation in terms his modern disciples would likely find uncomfortable—in the language of a supermarket managing its inventory of onions:

Special situations, as we define them, appeal mightily to one class of temperament for the very reason that they leave other people cold. They lack industrial glamor, speculative dynamite, or more sober growth prospects. But they do afford the analyst an opportunity to deal with security values very much as the merchant deals with his inventory, calculating in advance his average profits and his average holding period. In this sense they occupy an interesting middle ground between security purchases for ordinary speculation or investment and security purchases for resale in syndicate or dealership operations.

Inventory, turnover, average profit, holding period: this is not the elevated language of a patient long-term investor buying with a margin of safety and waiting for Mr. Market’s weighing machine to agree with him. Indeed, Graham’s category error only crept in when he and his disciples attempted to overextend the grocery analogy to ordinary minority stock picking rather than special situations, where no such delivery exists and Mr. Market’s cooperation is required. Remove the mechanism of force, and the entire structure collapses.

This is why these so-called “unglamorous” situations were, in practice, far more rigorous than value investing as it is commonly practiced. As we argued in The Factory That Makes Investment Processes Repeatable, they force discipline: universe definition, filtering, diligencing the fulcrum documents, mapping the event path, rules-based position sizing against bounded outcomes, and constructing trades around defined event paths with structural and timing certainty. These skills are not the exclusive domain of the event-driven practitioner—every serious investor, regardless of strategy, would do well to learn them.

Merger arbitrage—central to Graham’s toolkit and to our philosophy (see Let’s Break A Deal)—is perhaps the cleanest expression of this logic. A signed agreement, a defined spread, a timeline, and a set of enumerated risks. The analyst is not forecasting value but rather underwriting a path.

If this sounds less like the patient value investing sage of legend and more like a modern event-driven hedge fund, that’s precisely the point. As we stated in the preface to this series:

We suspect that Graham himself—were he operating today—would be the first to abandon the cargo cult that now worships at his altar. More provocatively, we’d even go so far as to posit that he would recognize a kindred soul in Paul Singer’s Elliott Management far more readily than in most of his value disciples—his most famous protégé Warren Buffett included.

The Graham that history remembers is a philosopher of value.

The Graham who made money was an arbitrageur, an activist, a legal tactician, and a manager of special situations inventories—working inside structures that forced convergence on a definite timeline.

There is an old story about the market craze in sardine trading when the sardines disappeared from their traditional waters in Monterey, California. The commodity traders bid them up and the price of a can of sardines soared. One day a buyer decided to treat himself to an expensive meal and actually opened a can and started eating. He immediately became ill and told the seller the sardines were no good. The seller said, “You don’t understand. These are not eating sardines, they are trading sardines.”
—Seth Klarman, Margin Of Safety

Modern value investing rests on a simple delusion: investors think they are buying “eating sardines”—a claim on real assets and cash flows. Indeed, Buffett famously advised investors to “only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

That advice only makes sense if you have Uncle Warren’s unique advantages—including permanent capital, insurance float, and the ability to buy the company outright. In practice, however, most value investors have none of these, but continue to invest as if they did. They are not buying a sardine to eat. They are buying a sardine to sell. The price of their “trading sardines” is determined not by what the company is but by what someone else is willing to pay for it.

Part of the reason modern value investing feels like such a Sisyphean task is that value investors generally do not have a seat at the table. Without a mechanism to compel convergence between price and value—and without the institutional substrate that makes the weighing machine function, a subject we will address elsewhere in the series—every stock you trade is a trading sardine, no matter how cheap you think it is.

If management decides to trap retained earnings inside the company to build a bloated empire, or if they decide to light the cash on fire through value-destroying acquisitions, your spreadsheet’s “intrinsic value” is meaningless—unless you have the standing to fire them, or the capital to buy the company outright. You only benefit if, at some point in the future, someone else comes along and decides to pay you a higher price for your share.

This is the dirty secret of most modern value investing: it is entirely dependent on the Greater Fool Theory. Without the ability to force a distribution, force a sale, or force a liquidation, you are entirely at the mercy of management and Mr. Market’s voting machine—unless and until something compels it to become a weighing machine.

When a value investor tells you a stock is “cheap,” they are pitching a story—a narrative that only becomes reified when enough other people believe it, too. A price-to-tangible-book ratio of 0.5x may appear to be objective fact, but the assets don’t sell and distribute themselves, nor does the spread automatically close on its own.

Unlike Graham, modern value investors generally mistake story for edge. The claim that a stock is “cheap” is an interpretive opinion about public information, offered in competition with every other market participant—both human and machine—who has access to the same filings, the same screens, the same AI agent pipeline. The overwhelming majority of the time, value investors are not discovering a hidden gem—and even if they do, they still need some way to force price-value convergence.

This is not to say an analyst can never find an edge in public information—but Graham and other event-driven practitioners operate on different terrain entirely. The advantage is not in the story telling but in the structure: understanding how a specific event path unfolds; knowing what the fallback is if it breaks; mapping the liquidity; sizing against bounded outcomes—and occasionally, proximity to the process itself.

The problem facing modern value investors is that the crowd needs to agree with your story and pay up—or they need the standing to force the issue themselves. Nor are all such forceful mechanisms for price-value convergence equal: they range from the ironclad to the illusory—and where you sit on that spectrum determines whether you are an investor or a supplicant.

The “continuum of force” is a doctrine used in law enforcement to describe the range of coercive options available in a given situation—from presence, to commands, to physical restraint, all the way to lethal force. Markets have a conceptually similar spectrum.

At one end is the modern value investor: passive presence only. You own the stock. You have a view. You wait.

At the other end are situations where the outcome is not optional: a merger agreement, a liquidation, a court order, a control position.

Most investors spend all of their time on Value—whether an asset is cheap, and on what something should be worth. Almost none of their time is spent analyzing Force—whether they have any ability to crystallize that value:

Force is the degree to which an asset holder can mechanically, legally, or economically compel the asset’s market price or realized payoff to converge toward intrinsic value independent of market belief.

“Value with a catalyst” is the standard upgrade that attempts to address this problem: rather than simply buying cheap and waiting, you buy cheap and identify some event—an investor day, an earnings beat, a sell-side initiation report, a new management team—that you hope will cause the market to finally recognize the value. But a catalyst is still just a hope with a story attached. It creates no obligation.

As Graham understood, Force is different in kind: it mechanically causes price-value convergence regardless of what the market believes.

Value analysis tells you whether something is cheap and how much margin of safety you might have. Behavioral finance tells you why it might be cheap. Risk frameworks tell you how much you might lose. None of them tell you the likelihood of ever crystallizing value.

Force operates on a different axis entirely: it determines whether the range of outcomes is bounded at all, or whether a mispricing can simply persist indefinitely because no one at the table has the standing to resolve it.

You can have a flawless model of intrinsic value, a behavioral diagnosis of why an asset is cheap, and a disciplined risk model governing your position size, and still lose—if no mechanism exists to make the price converge on value. What determines whether price converges to value is therefore less the quality of your research than the “big sticks” at your disposal: the legal claim, the blocking stake, the acceleration clause, the liquidation right, the ability to credibly “go activist”.

An asset without Force is still just a speculative trade, no matter how “cheap” it looks or how long your holding period.

Graham understood a reality that most modern value investors have forgotten: being right about value is not enough. You need a way to make it matter.

This was always the case, but it is particularly true now. The Financial Matrix—the operating system of modern markets—has structurally decoupled price from value in ways with which Graham never had to contend; more on this in future essays. In Graham’s day, waiting for Mr. Market was perhaps survivable—although even he was nearly wiped out; in the current environment, supplicating to Mr. Market is generally fatal.

Even in his time, however, Graham rarely relied on Mr. Market to do the price-convergence work for him. He operated in situations where value would be realized by Force. When he lacked Force, he treated the position as a trade and governed it with disciplined rules and time stops.

Those who understand Force nowadays rarely call themselves “value investors”—they go by other names, such as arbitrageurs, event-driven, or distressed debt investors. Elliott Management is perhaps the purest expression of what Graham had in mind when he wrote Security Analysis: it operates primarily in situations where it controls Force, structures even its activist positions so that it is nearly impossible to lose, and once took delivery of the Argentine navy. Not metaphorically. Literally:

Most investors will never seize a sovereign navy, but every investor sits somewhere on the Continuum of Force. At the bottom sits the typical value investor: armed with nothing but a spreadsheet and a prayer that Mr. Market will agree.

The distance between those two poles—investor and supplicant—is the focus of the next essay. Before we get there, however, a word on portfolio curation: this is not an argument against value investing as a portfolio ingredient in a collection of Multiflation holdings.

Value investing sits at the conservative end of the unbounded speculation spectrum; at the other end, explicitly asymmetric “lottery tickets”. During Multiflation, exposure across this spectrum need not indicate a lapse in judgment or discipline—it may be a considered response to a monetary and financial system that punishes the purely cautious.

Special situations and Force, however, serve a structurally different function: bounded outcomes, defined event paths, cash-like or fixed-income resilience with fewer drawbacks than long-duration assets in a Multiflationary environment. The question is never simply whether something is cheap or whether speculation is appropriate. It is whether you know precisely what you own and why you own it, what role each position plays in your collection of holdings, and whether your position sizing and curation reflect that honestly—or whether you are trading sardines while deluding yourself that you are going to eat them.

Value: Continuum Of Force

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