Stock Market History from Graham, Klarman, Buffett and Others


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The Importance of Studying History


London Value Investor Conference: Joel Greenblatt On Value Investing In 2022

The first London Value Investor Conference was held in April 2012 and it has since grown to become the largest gathering of Value Investors in Europe, bringing together some of the best investors every year. At this year’s conference, held on May 19th, Simon Brewer, the former CIO of Morgan Stanley and Senior Adviser to Read More

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; cycles 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 betterguide to making money in the bond markets than any financial analysis. Seth Klarman, value investor extraordinaire, has endowed a history chair (here: Warren Buffett sat for weeks in the Columbia University Library reading newspapers—including the ads!–from the 1930s to gain a sense of the Great Depression2.


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 otherway (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.? (Editor: The players change, but the music never stops).


Alan Greenspan went on record before he left his post at the Federal Reserve saying he had never seen a bubblebefore. I know in his adult lifetime there have been several bubbles. There was a bubble in the late 1960s in the

1 November 24, 2008:

When hedge fund manager Seth Klarman thinks back to his days studying history as a kid in Baltimore, his eyes don?t exactly light up.


“It was rote memorization of dates, wars and facts, and it didn?t come alive,” says Klarman, 51, co-founder of Boston-based Baupost Group, a $12 billion hedge fund firm. “You couldn?t visualize the people or even the events and why they mattered so much.”


But history is a subject so near and dear to Klarman that he now puts a lot of time (and part of his wealth) into avidly supporting an educational group called Facing History and Ourselves, whose mission is to train middle school and high school teachers to present history within a framework of civic duty and through lessons on how ordinary people can shape extraordinary events. Rote learning is cast aside in favor of helping young people see how what they do matters.


Students gain an awareness of current events, not the least of which are the challenges facing newly emerging democracies. “How do you get justice if half the country gets up and kills the other half, as in Rwanda?” Klarman asks. “And how do you move past it? Do you have memorials? How do you reconcile? Those are all issues that Facing History teaches.”


The organization was founded in 1976 by Margot Stern Strom, a former high school history teacher who grew up in the segregated South. Its first focus was the Holocaust and an exploration of how the acquiescence of practically an entire society led to the murder of millions. Facing History has since developed a popular training program that can be accessed either online or in person. Topics include anti-Semitism, racism, voting rights, gay rights and immigration. The lessons encompass the current as well as the historical — for example, the Armenian genocide of 1915, the American eugenics movement of the early 20th century, apartheid in South Africa and the crisis in Darfur.


Facing History has ten offices. Eight are in the U.S., one is in Canada, and the most recently opened is in London. Klarman says demand has grown globally: “Teachers inquire, „How can I learn about this? Can you come to my country? I?ve got a dozen friends; we all want to teach your curriculum.?”



2 See The Snowball, Warren Buffett and the Business of Life by Alice Schroeder


U.S. stock market; 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.


The study of past financial history can be a rich source of inspiration and guidance for investors. A historical perspective has always underpinned his (John Templeton‘s) own impressive achievements as an investor. (Introduction to Engines That Move Markets by Alasdair Nairn.


The study of market and economic history is excellent preparation for an investor, but the study of past events without a coherent theory for human action can often lead to confusion. I highly recommend downloading, What Austrian Economics Can Teach Historians by Thomas Woods at the following link:


An excerpt:


But no record of facts, no matter how judiciously arranged, interprets itself. ?History,? wrote Ludwig von Mises, ?cannot be imagined without theory. The naïve belief that, unprejudiced by any theory, one can derive history directly from the sources is quite untenable…. No explanations reveal themselves directly from the facts? (2003, pp. 107-108).


An epistemological dualist, Mises denied that methods appropriate to the natural sciences could be employed in the social sciences, where man, rather than inanimate objects, was the object of study. For one thing, the historian did not have the natural scientist‘s advantage of a laboratory in which he could observe the consequences of isolating a single factor. ?[H]istorical experience,? Mises wrote, ?is always the experience of complex phenomena, of the joint effects brought about by the operation of a multiplicity of elements? (Mises 1985, p. 208; Mises 1998, p. 31). With laboratory methods unavailable to him, if he was to make sense of historical events the historian could not approach his subject with his mind a tabula rasa but instead needed some acquaintance with social theory, lest he be overwhelmed by data he was helpless to interpret. ?The ?pure fact‘ – let us set aside the epistemological question whether there is such a thing – is open to different interpretations. These interpretations require elucidation by theoretical insight? (Mises 1990, p. 10).


However—if you study history, past facts and figures, you must have a theory or latticework of mental models in which to understand what you are looking at. If not, you will be lost or even learn the wrong lessons.


Ben Graham recommends studying market history.


Benjamin Graham‘s 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 retrospect, appeared to be un-mistakably excessive and irrational.?


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


Page Author Date Article Time Period
6 Ben Graham July 1932 ?Is American Business Worth More Dead than Alive?? 1932 – 1933
24 Mr. Dean Witter May 6, 1932 Memorandum 1928-1932
27 Harry Nelson April 13, 1942 1942 is really the reverse of 1929 1942
28 Ben Graham December 17, 1959 Stock Market Warning 1959-1960
38 Carol Loomis July 1973 Terrible Two-Tier Market 1972-1973
45 Warren Buffett November 1974 Over-Sexed Guy in a Harem 1974
48 Ben Graham September 1974 The Renaissance of Value 1974 and beyond
52 Warren Buffett August 1979 You Pay a High Price for a Cheery Consensus 1978-1979
57 Warren Buffett July 1999 Sun Valley Speech/Article on NASDAQ Over-valuation 1990‘s
71 Warren Buffett December 2001 Follow-up Article on 1999 Speech 1990‘s and beyond



75 Warren Buffett October 17, 2008 Buy America, I Am 2008 and beyond
80 Schwed/Train The Secret to Investing Timeless


When Ben Graham’s three part series, “Is American Business Worth More Dead than Alive?” waspublished in Forbes magazine, America, and indeed the world, had gone through the punishing stock market crashes of 1929 and 1930 and was in the depths of the Great Depression. Though the Depression continued until nearly the end of the decade, Graham‘s articles signaled to investors that it was now safe to return to the stock market. At that time, Graham pointed out, more than 30 percent of the companies listed on the NYSE were selling at less than what they would be worth if they were broken up and sold. In this series of articles, Graham took corporate management to task for taking advantage of investors and putting their own welfare ahead of that of the shareholders.


FORBES published a series of three articles by Benjamin Graham written at the bottom of the Great Crash. This is the first, Are Corporations Milking Their Owners?

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A Study of Market History Through Graham Babson Buffett and Others by ValueWalk

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