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Lessons From A Conversation With Benjamin Graham: Part 1

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Shortly before Benjamin Graham died, he gave an interview reflecting on all he had learned during his 60+ year career. The interview – titled A Conversation with Benjamin Graham – was conducted by the Financial Analyst JournalGraham’s profound answers offer exceptionally powerful lessons for investors still to this day.

During the course of Benjamin Graham’s unparalleled career, he published a vast number of articles, speeches, and reports which documented his investment principles. By far, the most referenced of these publications are two time-tested books, Security Analysis and The Intelligent Investor.

This article appeared first on The Stock Market Blueprint Blog.

None are more relevant to individual investors than his last interview.

Photo credit: Amazon

Photo credit: Amazon

A Conversation With Benjamin Graham

While there is tremendous wisdom found in all of Graham’s writings, no document is more valuable to an individual investor today than his interview with the Financial Analyst Journal in 1976. After all, Daniel Webster famously said, “Wisdom begins at the end.”

This article is the first of a multi-part series called, Lessons from a Conversation with Benjamin Graham. In this series, we look at each of Graham’s answers and see how they are relevant to investors today.

Part 1 breaks down the first four questions of A Conversation with Benjamin Graham. These questions focus on Graham’s view of common stocks and the financial industry as a whole.

Ben Graham’s View on Stocks

Question: In the light of your 60-odd years of experience in Wall Street what is your overall view of common stocks?

Ben Graham: Common stocks have one important characteristic and one important speculative characteristic. Their investment value and average market price tend to increase irregularly but persistently over the decades, as their net worth builds up through the reinvestment of undistributed earnings–incidentally, with no clear-cut plus or minus response to inflation. However, most of the time common stocks are subject to irrational and excessive price fluctuations in both directions, as the consequence of the ingrained tendency of most people to speculate or gamble–i.e., to give way to hope, fear and greed.

Translation: In the short-term, stocks go up and stocks go down. That’s inevitable. What’s also inevitable, is that in the long-term, stocks always go up. There’s no sense trying to profit in the short-term because price fluctuations are “irrational and excessive.” Investors who can resist fear and greed by avoiding the natural human tendency to gamble in the stock market will ultimately prove successful.

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