Benjamin Graham’s stock market warning.

H/T Safal Niveshak

The stock market has been advancing with only one significant setback throughout the decade of the 1950’s. It has thus established a new record it has not equaled the extent of the record advance of the 1920’s: 325 percent in this market versus 450 percent from 1921-1929.

What does this phenomenal upward movement portend for investors and speculators in the future? There are various ways of approaching this question. To answer it, I shall divide the question into two parts. First, what indications are given us by past experience? Second how relevant in past experience to the present situation and prospects?

As to the first part of my answer, I should be able to make some definite statements-which will be the reverse of encouraging. But as to the applicability of the record of the past to the present, i cannot express a categorical judgement. I shall present certain facts on the one side and certain expectations pointing the other way; I shall state my own opinion as to the probable answer; but in the end, each must resolve that part of the question for himself.

Indications from Past Experience

However, in order to judge today’s market level, it is desirable-perhaps essential-to have a clear picture of its past behavior. Speculators often prosper through ignorance; it is a cliche that in a roaring bull market knowledge is superfluous and experience a handicap. But the typical experience of the speculator is one of temporary profit and ultimate loss. If experience cannot help today’s investor, then we must be logical and conclude that there is no such thing as investment in common stocks and that everyone interested in them should confess himself a speculator.

This point is neatly illustrated by the opening lines of an article in a recent issue of Business Week describing the annual convention of Investment Clubs. The writer says: “Like all investors, large and small, they were mainly interested in which way the market-and particular stocks-would move next.”

Benjamin Graham

See full PDF below.