Tuesday, May 26, 2009

What Would Benjamin Graham Say?

Sixty years ago this month, the greatest book on investing, Benjamin Graham's The Intelligent Investor, was published. In considerably revised form, it's still in print.

What would Graham tell today's investors, especially the Boomers whose pensions are threatened, whose 401(k)s are sputtering (whatever happened to employer matches?) and whose overall failure to build financial independence is a national concern?

We'll never know. But if you accept the notion that the present prospect for more bad times, followed by high inflation, is reminiscent of the 1970s, we can guess that Graham might congratulate Boomers on their unexpected stroke of good luck. Jason Zweig in The Wall Street Journal explains:
In the depths of [the 1973-74] crash, near the end of 1974, Mr. Graham gave a speech in which he correctly forecast a period of "many years" in which "stock prices may languish."

Then he startled his listeners by pointing out this was good news, not bad: "The true investor would be pleased, rather than discouraged, at the prospect of investing his new savings on very satisfactory terms." Mr. Graham added a more startling note: Investors would be "enviably fortunate" to benefit from the "advantages" of a long bear market.
The bulk of the Boomer generation still has 15 years or more to save and invest before retiring. If they buckle down to the task and stick to their investment guns, they may wind up living higher on the hog than now seems possible.

And maybe some will. But Graham himself recognized that most won't. Few of us possess the "firmness of character" to escape the fears and fads of the day.

Perhaps that's the test of a truly great investment adviser: How many clients' characters can he or she firm up?

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