A Study of Market History and Valuation through Graham and Buffett and Others by John Chew

    I found this excellent article by John Chew. I am reposting with permission. A special thanks to my friend David Hui Lau who brought this article to my attention. I will post the first few pages and the rest of the document is in scribd.

    The Importance of Studying History

    Many outstanding investors have been fanatical students of history because history teaches you to place events into perspective, to understand that industries boom and fade; cycle’s repeat and human folly is never-ending. Bill Gross of Pimco (The Fixed Income Money Manager) said that the history books in his office have been a better guide to making money in the bond markets than any financial analysis. Seth Klarman, value investor extraordinaire, has endowed a history chair.   Warren Buffett sat for hours in the Columbia University Library reading newspapers—including the ads–from the 1930s to gain a sense of the Great Depression.

    Dan Loeb’s Third Point Re To Merge After Years Of Losses

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    Jim Rogers, the peripatetic investor, speaks about the value of studying history as an investor in the foreword to Financial Reckoning Day Fallout (2009) by William Bonner and Addison Wiggin. Jim Rogers: “The only other way (besides visiting countries around the world yourself) to know what is going on is to study history. When I teach or speak at universities, young people always ask me: “I want to be successful and travel around the world; what should I study?”

    I always tell them the same thing: “Study history.”

    And they always look at me very perplexed and say, “What are you talking about….what about economics, what about marketing?”

    “If you want to be successful, “I always say, “You’ve got to understand history. You will see how the world his always changing. You will see how a lot of the things we see today have happened before. Believe it or not, the stock market didn’t begin the day you graduated from school. The stock market’s been around for centuries. All markets have. These things have happened before. And will happen again.”

    Alan Greenspan went on record before he left his post at the Federal Reserve saying he had never seen a bubble before. I know in his adult lifetime there have been several bubbles. There was a bubble in the late 1960s in the U.S. stock market. There was the oil bubble (in the late 1970s). The gold bubble (in the 1980s). The (stock) bubble in Kuwait. The bubble in Japan. The bubble in real estate in Texas. So what is he talking about? Had he not seen those things, he could have at least read some histories…all these things and others have been written about repeatedly.

    Another lesson to learn from studying past market cycles is about market psychology. As the late Peter Bernstein observed, “In their calmer moments, investors recognize their inability to know what the future holds. In moments of extreme panic or enthusiasm, however, they become remarkably bold in their predictions: they act as though

    uncertainty has vanished and the outcome is beyond doubt. Reality is abruptly transformed into that hypothetical future where the outcome is known. These are rare occasions, but they are unforgettable: major tops and bottoms in markets are defined by this switch from doubt to certainty.”

    The venerable Ben Graham argued that an investor should “have an adequate idea of stock market history, in terms, particularly, of the major fluctuations. With this background he may be in a position to form some worthwhile judgment of the attractiveness or dangers….of the market.”

    John Templeton in the book, The Templeton Way by Lauren C. Templeton, said that understanding the history of the market is a huge asset for investing.  This is the case not because events repeat themselves exactly but because patterns of events and the way the people who make up the market react can be typical and predictable. History shows that crises always appear worse at the outset and that all panics are subdued in time.  When panics die down, stock prices rise.

    Benjamin Graham interview in An Hour with Mr. Graham by Hartman L. Butler, Jr. from the book, Benjamin Graham Building a Profession, Ed. By Jason Zweig

    Hartman L. Butler, Jr. (“HB”): Mr. Graham, what advice would you give to a young man or woman coming along now who wants to be a security analyst and a Chartered Financial Analyst?

    Graham: I would tell them to study the past record of the stock market, study their own capabilities, and find out whether they can identify an approach to investment that they feel would be satisfactory to their own case. And if they have done that, pursue that without any reference to what other people do or think or say.  Stick to their own methods. That is what we did with our own business (Graham-Newman Corp.). We never followed the crowd, and I think that is favorable for the young analyst. If he or she reads the Intelligent Investor—which I feel would be more useful than Security Analysis of the two books—and selects from what we say some approach which one thinks would be profitable, then I way that one should do this and stick to it.

    I had a nephew who started in Wall Street a number of years ago and came to me for some advice. I said to him, “Dick, I have some practical advice to five you, which is this. You can buy closed-end investment companies at 15% discounts on an average. Get your friends to put ‘x’ amount of dollars a month in these closed-end companies at discounts and you will start ahead of the game and you will make out all right.”

    ……They used to say about the Bourbons that they forgot nothing and they learned nothing, and (what) I will say about the Wall Street people, typically, is that they learn nothing, and they forget everything. I have no confidence whatever in the future behavior of the Wall Street people. I think this business of greed—the excessive hopes and fears and so on—will be with us as long as there will be people.

    ….There are two requirements for success in Wall Street. One, you have to think correctly; and secondly, you have to think independently.

    John Schultz (Forbes Columnist, 1959 – 1976) laid down this simple truth, “The stock market is rarely ‘sensible’ in commonsense terms. Stock prices have always gone up or down in response to rationalizations rather than reasons, and to levels that, in retroswpect, appearted to be unmistakeably excessive and irrational.”

    The following articles will give you a perspective on how to think about prices versus stock market valuation.





    Time Period


    Ben Graham

    July 1932

    “Is American Business Worth More Dead than Alive?”

    1932 – 1933


    Mr. Dean Witter

    May 6, 1932




    Ben Graham

    December 17, 1959

    Stock Market Warning



    Carol Loomis

    July 1973

    Terrible Two-Tier Market



    Warren Buffett

    November 1974

    Over-Sexed Guy in a Harem



    Ben Graham

    September 1974

    The Renaissance of Value

    1974 and beyond


    Warren Buffett

    August 1979

    You Pay a High Price for a Cheery Consensus



    Warren Buffett

    July 1999

    Sun Valley Speech/Article on NASDAQ Over-valuation



    Warren Buffett

    December 2001

    Follow-up Article on 1999 Speech

    1990’s and beyond


    Warren Buffett

    October 17, 2008

    Buy America, I Am

    2008 and beyond



    Secret to Investing


    The full compilation is below in scribd format. For best viewing click on Full Screen and click on the zoom-in icon.

    UPDATED Feb 2010 a Study of Market History Through Graham and Buffett and Others