ket. The price of Block rose to 75 in February 1971, but Blue Bell
advanced considerably more—to the equivalent of 109 (after a
three-for-two split). Clearly Blue Bell proved a better buy than
Block as of the end of 1969. But the fact that Block was able to
advance some 35% from that apparently inflated value indicates
how wary analysts and investors must be to sell good companies
short—either by word or deed—no matter how high the quotation
may seem.*Pair 5: International Flavors & Fragrances (flavors, etc., for
other businesses) and International Harvester Co. (truck
manufacturer, farm machinery, construction machinery)
This comparison should carry more than one surprise. Everyone
knows of International Harvester, one of the 30 giants in the Dow
Jones Industrial Average.† How many of our readers have even
heard of International Flavors & Fragrances, next-door neighbor to
Harvester on the New York Stock Exchange list? Yet, mirabile dictu,
IFF was actually selling at the end of 1969 for a higher aggregate
market value than Harvester—$747 million versus $710 million.
This is the more amazing when one reflects that Harvester had 17
times the stock capital of Flavors and 27 times the annual sales. In
458 The Intelligent Investor* Graham is alerting readers to a form of the “gambler’s fallacy,” in which
investors believe that an overvalued stock must drop in price purely because
it is overvalued. Just as a coin does not become more likely to turn up heads
after landing on tails for nine times in a row, so an overvalued stock (or stock
market!) can stay overvalued for a surprisingly long time. That makes short-
selling, or betting that stocks will drop, too risky for mere mortals.
† International Harvester was the heir to McCormick Harvesting Machine
Co., the manufacturer of the McCormick reaper that helped make the mid-
western states the “breadbasket of the world.” But International Harvester
fell on hard times in the 1970s and, in 1985, sold its farm-equipment busi-
ness to Tenneco. After changing its name to Navistar, the remaining com-
pany was booted from the Dow in 1991 (although it remains a member of
the S & P 500 index). International Flavors & Fragrances, also a constituent
of the S & P 500, had a total stock-market value of $3 billion in early 2003,
versus $1.6 billion for Navistar.