The Future of Common Stocks Benjamin Graham PDF
The Future of Common Stocks Benjamin Graham PDF
The Future of Common Stocks Benjamin Graham PDF
by Benjamin Graham
The Future Of
Common Stocks
stood at 90 in mid-1924, advanced to 381 by Sep-
The following article is taken, with slight tember 1929, from which high estate it collap-
revisions, from a paper prepared for sedas I remember only too wellto an ignomin-
delivery before a group of corporate pen- ious low of 41 in 1932.
sion executives in June 1974. The last half On that date the market's level was the lowest it
of the article aims to answer specific
had registered for more than 30 years. For both
questions raised in connection with the
General Electric and for the Dow, the highpoint of
address.
1929 was not to be regained for 25 years.
Here was a striking example of the calamity that
Before I came down to Wall Street in 1914 the can ensue when reasoning that is entirely sound
future of the stock market had already been when applied to past conditions is blindly followed
forecastonce for allin the famous dictum of long after the relevant conditions have changed.
J P . Morgan the elder: "It will fluctuate." It is a What was true of the attractiveness of equity in-
safe prediction for me to make that, in future years vestments when the Dow stood at 90 was doubtful
as in the past, common stocks will advance too far when the level had advanced to 200 and was com-
and decline too far, and that investors, like pletely untrue at 300 or higher.
speculatorsand institutions, like individuals The second episodehistorical in my think-
will have their periods of enchantment and disen- ingoccurred towards the end of the market's
chantment with equities. long recovery from the 1929 to 1932 debacle. It
To support this prediction let me cite two was the report of the Federal Reserve in 1948 on
"watershed episodes"as I shall call themthat the public's attitude toward common stocks. In
occurred within my own fmancial experience. The that year the Dow sold as low as 165 or seven
first goes back just 50 years, to 1924; it was the times earnings, while AAA bonds returned only
publication of E I . . Smith's little book entitled. 2.82 per cent. Nevertheless, over 90 per cent of
Common Stocks as Long-Term Investments. those canvassed were opposed to buying
His study showed that, contrary to prevalent equitiesabout half because they thought them
beliefs, equities as a whole had proved much better too risky and half because of unfamiliarity. Of
purchases than bonds during the preceding half- course this was just the moment before common
century. It is generally held that these fmdings stocks were to begin the greatest upward movement
provided the theoretical and psychological justifi- in market historywhich was to carry the Dow
cation for the ensuing bull market of the 192O's. from 165 to 1050 last year. What better
The Dow Jones Industrial Average (DJIA), which illustration can one wish of the age-old truth that
the public's attitudes in matters of fmance are
Benjamin Graham, senior author o/Security Analysis, completely untrustworthy as guides to investment
first edition of which appeared in 1934, needs no in- policy? This may easily prove as true in 1974 as it
troduction to the readers of this magazine. was in 1948.