Page 129 - Morgan Housel - The Psychology of Money_ Timeless Lessons on Wealth, Greed, and Happiness-Harriman House Limited (2020)

particularly matter what caused the change. What matters is that things
clearly changed.
COBACOBA

To show how these historic changes should affect investing decisions,
consider the work of a man many believe to be one of the greatest

investment minds of all time: Benjamin Graham.

Graham’s classic book, The Intelligent Investor, is more than theory. It
gives practical directions like formulas investors can use to make smart
investing decisions.

I read Graham’s book when I was a teenager, learning about investing for
the first time. The formulas presented in the book were appealing to me,
because they were literally step-by-step instructions on how to get rich. Just
follow the instructions. It seemed so easy.

But something becomes clear when you try applying some of these
formulas: few of them actually work.

Graham advocated purchasing stocks trading for less than their net working
assets—basically cash in the bank minus all debts. This sounds great, but
few stocks actually trade that cheaply anymore—other than, say, a penny
stock accused of accounting fraud.

One of Graham’s criteria instructs conservative investors to avoid stocks
trading for more than 1.5 times book value. If you followed this rule over
the last decade you would have owned almost nothing but insurance and

bank stocks. There is no world where that is OK.

The Intelligent Investor is one of the greatest investing books of all time.
But I don’t know a single investor who has done well implementing
Graham’s published formulas. The book is full of wisdom—perhaps more
than any other investment book ever published. But as a how-to guide, it’s
questionable at best.

What happened? Was Graham a showman who sounded good but whose
advice didn’t work? Not at all. He was a wildly successful investor himself.