Prophetic Words From Ben Graham At The Top Of The 1960s Bull Market

Just a few years before the 1965 stock market top, Ben Graham gave a speech (attached) and made the following prophetic points among others on investing.

“The problem with price fluctuations, or market fluctuations, is a very real one for investors as well as speculators, although there has been a tendency in Wall Street to deny that for a number of years in the past and even currently. Actually, the real problem is not whether price fluctuations are important to the investor; it is rather the opposite, that it is to find some good workable distinction between the investor and speculator in common stocks. As will be pointed out later that distinction has almost vanished from Wall Street, a fact that has caused a great deal of trouble in the past and will cause a great deal of trouble in the future.” …How many on Wall Street today (4/8/15) talk about the distinction between speculating vs investing?

“They are returning to the idea that for the smart investor the question of stock market fluctuations does not have to be considered to any great extent. There is a two-fold emphasis here, which slurs over the reality of stock market fluctuations. The first in the general conviction that the market can be counted on to advance so emphatically through the years that whatever declines take place are comparatively unimportant; hence if you have the true investor’s attitude you don’t have to concern yourself with them. The second claim is a denial that the “stock market” exists at all, meaning thereby that what the averages do is of no real importance to the intelligent, well advised investor or speculator. It seems to be a ruling tenet of Wall Street that if you practice the proper kind of selectivity in investments you don’t have to worry about what the stock market does as a whole, as shown by the averages, for at all times the good stocks will be going up and the bad ones will be going down and all you need to do is pick the good stocks and forget about the averages.” …How many on Wall Street today consider the downside of stock investing?

“It does not necessarily follow that a large rise in the price of a individual stock or the market averages must be followed by a decline; but the only reason to view with confidence the future price of a security that has already advanced substantially in the presence of external reasons, other than the actual price movement itself, which could justify such confidence. Hence a large advance in the stock market is a sign for caution and not a reason for confidence.” …How many (major players) on Wall Street today consider valuation when assessing asset allocation?

There are two that I can think of…PIMCO and GMO.

Here’s a copy of the speech…BG-Speech-SF-1963