By Tom Bradley
“I think the future of equities will be roughly the same as their past; in particular, common-stock purchases will prove satisfactory when made at appropriated price levels. It may be objected that it is far too cursory and superficial a conclusion; that it fails to take into account the new factors and problems that have entered the economic picture in recent years – especially those of ... the movement towards less consumption and zero growth. Perhaps I should add to my list the widespread public mistrust of Wall Street as a whole, engendered by its well-nigh scandalous behavior during recent years in the areas of ethics, financial practices of all sorts, and plain business sense.”
Was this a quote from me responding to readers and clients who can’t believe I’d recommend a full allocation to stocks at this time of economic peril? No, it’s from a speech by Benjamin Graham, the father of value investing, which was printed in the Financial Analyst Journal’s 1974 September/October issue. At time of publication, the S&P 500 was down 48% from January, 1973. In 1975, the index was up 37%.
Stocks aren’t down nearly as far as they were during the oil crisis in 1974 (and I’m certainly not looking for a 1975 recovery), but the penchant for investors to disengage from company fundamentals and stock valuations, and instead act on political and economic news is rivaling some of the previous market lows.
(Thanks to Southeastern Asset Management for reprinting Mr. Graham’s quote in its third quarter report.)