Common stocks have one important characteristics and one important speculative characteristic. Their investment value and average market price tend to increase irregularly but persistently over the decades, as their net worth builds up through the reinvestment of undistributed earnings–incidentally, with no clear-cut plus or minus response to inflation. However, most of the time common stocks are subject to irrational and excessive price fluctuations in both directions, as the consequence of the ingrained tendency of most people to speculate or gamble–i.e., to give way to hope, fear and greed.
One of the most important indicators of durable competitive advantage. Net earnings can be paid out as dividends, used to buy back shares or retained for growth.If the company loses more than it has accumulated, retained earnings is negative.If a company isn’t adding to its retained earnings, it isn’t growing its net worth.Rate of growth […]
Q: Since Ben Graham isn’t around anymore, what money managers do you respect today? Is there a Ben Graham today? Wealth would create more Wealth You don’t need another Ben Graham. You don’t need another Moses. There were only Ten Commandments; we’re still waiting for the eleventh (j/k). His investing philosophy is still alive and […]
History is important to the study of financial bubbles precisely because they are extremely rare events, but history can be misleading. The rarity of bubbles in the historical record makes the sample size for inference small. Restricting attention to crashes that followed a large increase in market level makes negative historical outcomes salient. In this […]