Ander's Market Theories

[AnderL]

so I'm reading a Conversation with Ben Graham,

http://www.bylo.org/bgraham76.html

one of the last interviews with the father of value investing, and I'm surprised to find that he discarded his whole methodology that he wrote in Security Analysis

excerpt:

In selecting the common stock portfolio, do you advise careful study of and selectivity among different issues?

In general, no. I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I'm on the side of the "efficient market" school of thought now generally accepted by the professors.

40 years ago was 1936. He has jumped on the band wagon of indexing because you can't outperform the market. You have to wonder what he would have be able to say if he were still alive. If he would have held fast to his original principles if he lived 5-25 more years. I am of the camp that most humans cannot fathom what exists before or beyond their lifetimes. The baby boom generation never lived through the depression era. They barely lived through the 70s as investors. They only started to actively pursue investment and business in the 1980 when they came down off their drug induced highs and realized they need to get a life. The peak of the boomers where born in the 1950s. At 30 is when most people actively accelerate investment.

It is sad to see what the current generations X and Y have to go through when they saw how easy it was for their parents to generate wealth and as they enter the markets they find that they are suffering heavy losses as the carpet is pulled out from underneath them. The peak of generation X births occurred in the 1970s and they would be actively accelerating investment at the start of 2000. They will probably look back some 20-30 years from now and see how they only were able to capitalize about 4-5% year over year and no social security system to support them and not the 15-20% their parent received.

Generation Y may fair better because they will be putting their money into the market actively by the turn of this decade. Births in that generation peaked in 1990s so they will be investing heavily in 2020. They are also called the echo boomers.

Maybe if Ben was alive today he could have received his confirmation that his Security Analysis did work and that we are now going 3 for 3 with value opportunities going forward from here. I just hope this new generation shakes off the day trader mentality and really tries to invest their money going forward. There are incredible opportunities to fire and forget letting your money run for the next 25-35 years.