Stocks for the Long Run : the Definitive Guide to Financial Market Returns and Long-term Investment Strategies

7

CHAPTER

STOCKS: SOURCES AND MEASURES

OF MARKET VALUE

Even when the underlying motive of purchase [of common stocks] is

mere speculative greed, human nature desires to conceal this unlovely

impulse behind a screen of apparent logic and good sense.

BENJAMINGRAHAM ANDDAV I DDODD, 1940^1

AN EVIL OMEN RETURNS

In the summer of 1958, an event of great significance took place for those

who followed long-standing indicators of stock market value. For the

first time in history, the interest rate on long-term government bonds

rose above the dividend yield on common stocks.

BusinessWeeknoted this event in an August 1958 article entitled

“An Evil Omen Returns,” warning investors that when yields on stocks

approached those on bonds, a major market decline was in the offing.^2

The stock market crash of 1929 occurred in a year when stock dividend

95

(^1) “The Theory of Common-Stock Investment,” Security Analysis, 2d ed., New York: McGraw-Hill,
1940, p. 343.
(^2) BusinessWeek, August 9, 1958, p. 81.
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