Ben Graham's Congressional Hearing
- By Mitchell Mauer
(This article appeared first on The Stock Market Blueprint Blog.)
In –955, The Father of Value Investing stood before the U.S. Senate Committee on Banking and Currency. Ben Graham's congressional hearing is full of timeless wisdom and investment insights.
The committee questioned Graham on his investment success and the 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 wrongdoings, nor am I even suspicious of any. However, the remarkable rises in market prices over the past –5 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 –9—9 levels, and the committee wanted to ensure abusive actions were not going to create another meltdown.
Ben Graham’s timeless wisdom
At the time of 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 Graham's congressional hearing in its entirety, here are some excerpts of Graham's profound statements.
Graham: With respect to the causes of the rise in the market since September –95‘, 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.
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 that can be followed regardless of current circumstances.