Investing discussion

The following are brief excerpts and a conclusion segment from chapter two of Benjamin Graham’s 1973 revised “The Intelligent Investor”. In my personal opinion, these excerpts to not do the chapter justice. The following statements and paragraphs are for informational purposes only. Graham examines previous periods of inflation, returns of the DJIA and high yield bonds. For the sake of brevity for this discussion post, it is limited to a brief intro, a key question and part of Graham’s conclusion.

In chapter two, Graham considered the effects of inflation on the investor. He starts with, “Inflation, and the fight against it, has been very much in the public’s mind in recent years. The shrinkage in the purchasing power of the dollar in the past, and particularly the fear (or hope by speculators) of a serious further decline in the future, has greatly influenced the thinking of Wall Street.”

A key question Graham posed is, “Is there a persuasive reason to belie that common stocks are likely to do much better in future years than they have in the last five and one-half decades? Our answer to this crucial question must be a flat no. Common stocks may do better in the future than in the past, but they are far from certain to do so.”

In Graham’s chapter two conclusion, he wrote, “We think strongly that the risks involved in buying, say, a telephone company bond at yields of nearly 7½% are much less than those involved in buying the DJIA at 900 (or any stock list equivalent thereto). But the possibility of large-scale inflation remains and the investor must carry some insurance against it.”

How do Graham’s thoughts and words bring context to a variety of economic conditions?

What other thoughts do you have?