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From the book Big Mistakes – Benjamin Graham

2 Jul 2018,

Two weeks ago, I presented you the book by M. Batnicka named Big Mistakes: The Best Investors and Their Worst Investments.

Benjamin Graham

Today I will show you that no one is truly infallible. We will begin with the largest value investment guru and inventor of the financial analysis – Benjamin Graham. He was the first one who came up with the idea that the stock price and the value of the company are two separate things and that their difference can make us profit.


After the first rapid fall in stock prices shortly before the 1929 financial crisis, Graham concluded that that the stock price has fallen below its real value, he closed down all his positions speculating on the fall of the stock prices and bought the stock. In 1929, this resulted in a worse result than the stock index (20% decline in its portfolio, while DJIA declined by 17%). It is important to note that whole twenties Graham had been beating the DJIA index.

Buying on a margin

Another big mistake was that in 1930 he considered the crisis to be over, and the stock prices seemed to be inexpensive to him. He subsequently bought the shares for all his free money, he even used a stock loan, so-called margin. Subsequently, there has been another fall in stock prices and Graham lost half of the remaining estate. In 1929-1932 he lost 70% of the estate.

He got out of crises, but between the years 1926 – 1935 he achieved virtually the same appreciation as the S & P 500 index. Because he had been overcoming the index in the 1920s it means that its performance had been worse than the performance of the index during problematic years 1929-1935.

Investor´s Lesson:

The share price and value are important, but you must not become their slave. Even what is really cheap can later be cheaper. Therefore, do not panic and, in addition to stock prices and financial analysis, also follow the behavior of other investors.

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