We continue with our discussion on the Intelligent Investor to apply the everlasting knowledge to the current market in order to avoid doing stupid things and take advantage of others’ stupid actions. Graham’s data go up to 1971 but so we will first look at his and later discuss the insight on the current situation.
The main points Graham emphasises where we can learn much from history are:
the VARYING relationship between stock prices and their earnings and dividends
It is important to understand the manner in which stocks have mede their underlying advance through the MANY cycles of the past century
Look at successive TEN-year averages of earnings, dividends and stock prices
From 1871 to 1971 there have been 19 bear markets where stocks fell from 15% to 86% from top to bottom. Yes, 86% is the correct number and it was even 89% of the S&P 500 in the 1929-1932 period. Many forget that the 1920s were one of the best periods in history based on consumerism etc. Rings a bell? However, that is a story for another day. Let’s look at how Graham describes what had been going on.