Stock Market - Ben Graham's comments on the market appropriate today

Who's Ben Graham? Seriously.

Wake up wrote:

Who's Ben Graham? Seriously.

Good question.

-Considered the father of value investing.

-Warren Buffett's mentor.

-Author of Intelligent Investor, and Security Analysis... considered two of the best investing books ever written (Buffett says Intelligent Investor is by far the #1 investing book ever written, and is what he has based his investing career off of).

1968 all over again. Ok. Are you saying that's good or that's bad?

In 1968, the Dow was at ~910.

10 years later it was a ~780. That's obviously no good.

By 1988 though it was above 2000, and by 1998, ~8000.

So, I guess it all depends on your time frame. Got 10 years, and if you're right, not so good. Got 20, better. Got 30, good (over 8% gain annually, and that's just the market gaining, no dividends reinvested).

Flagpole wrote:

1968 all over again. Ok. Are you saying that's good or that's bad?

In 1968, the Dow was at ~910.

10 years later it was a ~780. That's obviously no good.

By 1988 though it was above 2000, and by 1998, ~8000.

So, I guess it all depends on your time frame. Got 10 years, and if you're right, not so good. Got 20, better. Got 30, good (over 8% gain annually, and that's just the market gaining, no dividends reinvested).

Certainly depends on time frame. But our recent historic bull market has been much longer than the one leading up to 1969, so I wouldn't be surprised to see a longer bear market today than they experienced.

It is important to consider the effects of inflation on those numbers to truly understand what happened.... especially during that time period. The 70s and early 80s were extremely high inflation, so the real returns are much lower. The nominal numbers you cite are misleading to somebody that doesn't understand that... at least the 10 & 20 year numbers.

wait a second... wrote:

Certainly depends on time frame. But our recent historic bull market has been much longer than the one leading up to 1969, so I wouldn't be surprised to see a longer bear market today than they experienced.

When it comes to the stock market, paying attention to historical trends is a fool's game.

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The danger of thinking along these lines is that it keeps people out of the stock market.

People are always looking for reasons not to invest, and most never do - they are always worried about the next crash just around the corner.

Those who do invest and have a long term horizon, and don't panic sell, will have the kind of lifetime returns that make stocks the best performing asset class.

agip wrote:

The danger of thinking along these lines is that it keeps people out of the stock market.

People are always looking for reasons not to invest, and most never do - they are always worried about the next crash just around the corner.

Those who do invest and have a long term horizon, and don't panic sell, will have the kind of lifetime returns that make stocks the best performing asset class.

This ^ is the right answer.

agip wrote:

The danger of thinking along these lines is that it keeps people out of the stock market.

Not somebody that applies the straightforward principles taught by Graham (which is what this thread is talking about). They would simply evaluate whether stocks offered an attractive value before blindly throwing their money at stocks.

No other business investment that I know of it is recommended so often to buy and pay no attention to the price you pay relative to the value you're get.

The replies thus far are very revealing. 3 resident experts have chimed in... in perfect melody.

It sounds pretty similar to what Graham described.

wait a second... wrote:

...The replies thus far are very revealing. 3 resident experts have chimed in... in perfect melody.

It sounds pretty similar to what Graham described.

Yeah, makes sense. Whenever several individuals with expertise in a given field agree upon one point this provides clear evidence that the opposite must be true. You've certainly convinced me.

wait a second... wrote:

agip wrote:

The danger of thinking along these lines is that it keeps people out of the stock market.

Not somebody that applies the straightforward principles taught by Graham (which is what this thread is talking about). They would simply evaluate whether stocks offered an attractive value before blindly throwing their money at stocks.

No other business investment that I know of it is recommended so often to buy and pay no attention to the price you pay relative to the value you're get.

The replies thus far are very revealing. 3 resident experts have chimed in... in perfect melody.

It sounds pretty similar to what Graham described.

__

funny story - toward the end of his life Graham changed his mind on security analysis and very possibly on value investing in general (although that last is debatable).

This is relevant here because of Graham's reasoning: the expansion of security analysis had reduced the number of "50 cents on the dollar" investments.

He said that to some extent he had become a recommender of indexed investments.

So where does that leave us here? Graham would probably say that in times of extreme high valuations like 1999, investors should stay away. But in times of moderate and close to average valuations, you should be invested and stay invested.

Do we agree on that? I suspect our disagreement is not vast.

graham: "I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent, I'm on the side of the "efficient market" school of thought now generally accepted by the professors."

Bigfoot Investments wrote:

Yeah, makes sense. Whenever several individuals with expertise in a given field agree upon one point this provides clear evidence that the opposite must be true. You've certainly convinced me.

I simply said your recommendations sounded a lot like what Graham described in the quote. Does it not?

You likely have much more experience investing than I do. I certainly can't claim "expertise". In your experience with investing, how much opportunity is there typcially in following what everybody else is doing & recommending?

wait a second... wrote:

It's 1968 all over again.

Awesome!!! The Mets are soon to win the World Series!!!

You argue that equities in general are over valued right now, which is true. But even Ben Graham would agree that there are sectors that carry attractive long term valuations. Are old people not going to need medicine and healthcare over the next 20yrs? No. When they figure out how to ship all this natural gas you think foreign demand will clear out some of the current supply? Yes. There's plenty of examples of value out there, particularly in American companies. Resist the urge to simplify Graham solely in an effort to needle Flagpole.

Pay attention wrote:

wait a second... wrote:

Certainly depends on time frame. But our recent historic bull market has been much longer than the one leading up to 1969, so I wouldn't be surprised to see a longer bear market today than they experienced.

When it comes to the stock market, paying attention to historical trends is a fool's game.

I don't agree

EXACTLY!

Flagpole - So you think we could have a bull market of 10yrs+? That seems a little extreme if I'm following you correctly.

Flagpole wrote:

Certainly depends on time frame. But our recent historic bull market has been much longer than the one leading up to 1969, so I wouldn't be surprised to see a longer bear market today than they experienced.

It is important to consider the effects of inflation on those numbers to truly understand what happened.... especially during that time period. The 70s and early 80s were extremely high inflation, so the real returns are much lower. The nominal numbers you cite are misleading to somebody that doesn't understand that... at least the 10 & 20 year numbers.

[/quote]

wait a second... wrote:

Bigfoot Investments wrote:

Yeah, makes sense. Whenever several individuals with expertise in a given field agree upon one point this provides clear evidence that the opposite must be true. You've certainly convinced me.

I simply said your recommendations sounded a lot like what Graham described in the quote. Does it not?

You likely have much more experience investing than I do. I certainly can't claim "expertise". In your experience with investing, how much opportunity is there typcially in following what everybody else is doing & recommending?

OK, so that is indeed what you simply said. A pure, literal interpretation of your statement would lead one to agree. A bit like saying the grass is green. Difficult to disagree with that. The question is, what are you implying? Because a very reasonable interpretation of what you were implying is what I reacted to. And if you were implying nothing at all then yours was a pretty vacuous statement indeed.

But on to you your question - I will be happy to entertain any questions that you would like to pose. I will, however, insist that they are well posed questions. There is not now, nor has there ever been, nor will there ever be a time when "everybody else is doing & recommending" the same thing. So, if you can start there and pose a legitimate question I will be happy to attempt to address it.

Bigfoot - I've always liked the way you write/think - that was an excellent cut the bs reply.

I'm curious - how old you are you?

(Flagpole and I are in our mid 40s)

Stock Analyst wrote:

Flagpole - So you think we could have a bull market of 10yrs+? That seems a little extreme if I'm following you correctly.

Flagpole wrote:

Certainly depends on time frame. But our recent historic bull market has been much longer than the one leading up to 1969, so I wouldn't be surprised to see a longer bear market today than they experienced.

It is important to consider the effects of inflation on those numbers to truly understand what happened.... especially during that time period. The 70s and early 80s were extremely high inflation, so the real returns are much lower. The nominal numbers you cite are misleading to somebody that doesn't understand that... at least the 10 & 20 year numbers.

First of all, I didn't write what you've made it look like I wrote above...must have just been an accident on your part, because what's written there has really nothing to do with your question to me.

Secondly, I don't really go about predicting long term bull or bear markets. I invest no matter what, and if there's an extended down turn and I have extra money, I might throw in a little extra. I just look at the facts that 73% of all years are UP, and the overall trend is up, so I invest what I don't need today so that I'll have something for the future. We've already had a 4+ year bull market...I have no idea how long it will last.