COMMENTARY ON CHAPTER
You’ve got to be careful if you don’t know where you’re going,
’cause you might not get there.
—Yogi BerraBULL-MARKET BALONEY
In this chapter, Graham shows how prophetic he can be. He looks
two years ahead, foreseeing the “catastrophic” bear market of
1973–1974, in which U.S. stocks lost 37% of their value.^1 He also
looks more than two decades into the future, eviscerating the logic of
market gurus and best-selling books that were not even on the horizon
in his lifetime.
The heart of Graham’s argument is that the intelligent investor must
never forecast the future exclusively by extrapolating the past. Unfortu-
nately, that’s exactly the mistake that one pundit after another made in
the 1990s. A stream of bullish books followed Wharton finance pro-
fessor Jeremy Siegel’s Stocks for the Long Run(1994)—culminating,
in a wild crescendo, with James Glassman and Kevin Hassett’s Dow
36,000, David Elias’ Dow 40,000, and Charles Kadlec’s Dow
100,000(all published in 1999). Forecasters argued that stocks had
returned an annual average of 7% after inflation ever since 1802.
Therefore, they concluded, that’s what investors should expect in the
future.
Some bulls went further. Since stocks had “always” beaten bonds
over any period of at least 30 years, stocks must be less risky than
bonds or even cash in the bank. And if you can eliminate all the risk of
owning stocks simply by hanging on to them long enough, then why
80
(^1) If dividends are not included, stocks fell 47.8% in those two years.