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In 1955, The Father of Value Investing stood before the United States Senate Committee on Banking and Currency. Ben Graham’s congressional hearing is full of timeless wisdom and investment insights.
Purpose of Ben Graham’s Congressional Hearing
The committee questioned Graham on his investment success and the current state of the overall stock market. His testimony was part of a larger inquiry investigating possible fraud associated with recent stock market movements.
The chairman of the committee had said, “I know of no specific frauds, manipulations or wrong-doings, nor am I even suspicious of any. However, the remarkable rises in market prices over the past 15 months…certainly warrant the Committee’s concern and study.”
This graph shows the price-rise responsible for the concern.
Source: Morningstar
The market had just returned to its 1929 levels, and the committee wanted to ensure abusive actions were not going to create another meltdown.
Benjamin Graham’s Timeless Wisdom
At the time of Ben Graham’s congressional hearing, he was chairman of the board for the Graham-Newman Corp. and an adjunct professor at Columbia Business School. His vast experience and remarkable success as an investor made him an ideal witness in the investigation.
While it’s recommended that all aspiring investors read Ben Graham’s congressional hearing in its entirety, here are some excerpts of Graham’s profound statements.
Ben Graham: With respect to the causes of the rise in the market since September 1953, my statement indicates I would emphasize very much the change in investment and speculative sentiment, more than any change in basic economic factor. I wanted to point out that that carries an element of danger because a change of sentiment for the better may be followed by a change in sentiment for the worse.
Translation: The stock market often moves because of human emotion rather than economic and business factors. Optimistic movement is eventually followed by pessimistic movement. Likewise, pessimistic movement is always followed by optimistic movement. There’s no saying how long a particular trend will last until the reversal takes effect.
Ben Graham: I think our success is due to our having established sound principles of purchase and sale of securities, and having followed them consistently through all kinds of markets.
Translation: To be successful, an investor must select a strategy and stick to it in any market environment. The strategy should consist of simple buy and sell rules which can be followed regardless of current circumstances.
Ben Graham: I think the market, being at a rather sensitive level, is subject to a vast number of influences which might put the market down or up, and among those influences are these hearings.
Translation: Government policies (or the possibility of government policies) affect daily fluctuations of the stock market. This is seen whenever the Federal Reserve holds a press conference or politicians push an agenda. Investors are wise to ignore these short-term movements.
Ben Graham: I have never specialized in economic forecasting or market forecasting either. My own business has been largely based on the principle that if you can make your results independent of any views as to the future you are that much better off.
Translation: Successful investors do not try to predict the future.
Ben Graham: That is one of the mysteries of our business, and it is a mystery to me as well as to everybody else. We know from experience that eventually the market catches up with value. It realizes it in one way or another.
Translation: Graham’s response to the Chairman’s question regarding an undervalued stock rising to a level of full valuation. This is the process of mean reversion.
More than sixty years after Ben Graham’s congressional hearing, his words are still relevant to investors of all levels. Graham’s wisdom has repeatedly been shown to have stood the test of time.
Mitchell Mauer is the Founder of TheStockMarketBlueprint.com. The Stock Market Blueprint is a site that finds value stocks for investors building long-term wealth. The site’s investment philosophy is anchored in principles established by Benjamin Graham and his most reputable followers over the last 100 years.
