Novel Investor

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Wise Words from Ben Graham

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Few people are as widely published as Ben Graham. He was first published in 1917 for The Magazine of Wall Street, which lasted about a decade. He would branch off into Forbes, Barron’s, Medical Economics…it’s too many to list, and I don’t know how many more.

Every time I think I’ve found all I can find, I find some more. And I read practically all of it.

The one thing that always stands out is Graham had a knack for condensing big ideas into a simple sentence or two. So I thought I’d share some of his more quotable one-liners from some of his works.

Here’s Graham: Continue Reading…

Ben Graham: How External Factors Affect Decisions

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Ben Graham believed the great 1920s bull market would end disastrously, yet kept investing as though it wouldn’t happen.

You might think that’s worthy of praise, somehow. He stuck to his guns and never strayed from his strategy.

Well, you’d be wrong. One of the brightest minds on Wall Street strayed from his strategy and couldn’t follow his gut.

Graham explained everything, even questioning his reasons, in his memoirs: Continue Reading…

The Lessons of History

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History is a funny thing. Despite being over and done with, it’s constantly changing. It’s fluid. Our understanding of history is in a state of flux.

Our knowledge of any past event is always incomplete, probably inaccurate, beclouded by ambivalent evidence and biased historians, and perhaps distorted by our own patriotic or religious partisanship. “Most history is guessing, and the rest is prejudice.”

To top it off, we may not have the knowledge — yet or ever — to piece it all together. New ideas and discoveries constantly rewrite what we thought we knew about the past.

So historians make do with what they have. The result is an incomplete, biased, and often simplistic story that brings order to past events.

That’s roughly how The Lessons of History, a book by Will and Ariel Durant, presents it. And it relates surprisingly well to investing. For instance, the above describes how media present headlines and narratives around market moves. Continue Reading…

Peter Lynch on Portfolio Construction

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Peter Lynch is known for his versatility. “Not picky” is probably a better description since he deployed a wide range of strategies during his career to earn market-beating returns.

As described in his book, One Up on Wall Street, he’d invest in anything — slow growers, stalwarts, fast growers, cyclicals, turnarounds, and asset plays. He even borrowed Ben Graham’s net-net strategy to invest in Dot-com stocks after the bubble burst.

But how did he put that skill to use when constructing his portfolio?

In a 1985 interview, he described his strategy behind the Magellan Fund. Lynch divided the fund into three buckets — conservative stocks, growth stocks, and special situations: Continue Reading…

The Rise and Fall and Rise of Ben Graham

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Sometimes beating the market isn’t all it’s cracked up to be. Just ask Ben Graham.

Graham set up his second fund, the Graham Joint Account, in 1926 (after closing down his first fund set up with Louis Harris, Grahar Corp., run from 1923 – 1925). Over the first three years, 1926 to 1928, Graham’s new fund would earn 25.7% annually against the Dow’s 20.2%. He handily beat the market on the way up.

And he beat it on the way down…

From 1929 to 1932, Graham’s fund lost 70% compared to the Dow’s 80% loss (a beating alright). If he was chasing relative returns, he succeeded.

But Graham knew he failed. He barely survived the worst four year period ever in the stock market.

Not surprisingly, it would leave a lasting impression on him. James Grant explained exactly what went wrong during a 2008 Graham and Dodd event: Continue Reading…

Peter Lynch: The ’87 Crash and Recession Worries

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In rummaging around my stuff on Peter Lynch, I found the 1988 Barron’s Roundtable. The Roundtable, for those who don’t know, is a chance for fund companies to show off their star manager’s, talk their book, get some free press out it, and Barron’s can feed the demand for stock tips.

Tips aside, it’s Peter Lynch and the ’88 edition is interesting for a few reasons:

  1. Lynch mentioned roughly 110 stocks. Stock tips are overrated, but chasing after Lynch’s tips seems insane. Maybe his objective was to offer so many “tips,” it was easier to just buy the fund?
  2. Lynch says he owned “at least 1,500” stocks in the Magellan fund. The fund was so huge, he was basically limited to playing industry bets. And if memory serves, he beat the market in ’88 (along with his entire career).
  3. The fund managers — the Pros! — were still freaked out about the October ’87 Crash going into 1988 and worried about a recession.
  4. However, Peter Lynch was not.

Or Lynch didn’t show it. Continue Reading…

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