BEnjAmin grAhAm
BEnjAmin grAhAm wAs A notED EConomist who FormulAtED his thEoriEs on stoCk mArkEt invEstmEnt in rEsponsE to thE grEAt stoCk mArkEt CollApsE oF 1929. spECiFiCAlly, hE viEwED thE CollApsE oF thE stoCk mArkEt As A rEsult oF pEoplE Following mArkEt trEnDs too ClosEly. in FACt, hE oFtEn usED A ChArACtEr CAllED "mr. mArkEt" in his works to DEmonstrAtE how Foolish it wAs to simply FAll into linE with mArkEt trEnDs. iF A pErson CAllED "mr. mArkEt" AppEArED on your DoorstEp EACh DAy AnD oFFErED rAnDom priCEs For vArious stoCks, you woulD not ACCEpt EvEry oFFEr hE mADE, sinCE somE oF thosE oFFErs woulD BE uttErly riDiCulous. instEAD,BEnjAmin grAhAm ArguED, A pErson who wishEs to Do wEll in thE stoCk mArkEt shoulD sEEk out stoCks thAt ArE BEing solD For lEss thAn thEir vAluE shoulD BE in A rAtionAl mArkEt. this wAs somEthing hE CAllED vAluE invEsting. thE proBlEm, oF CoursE, liEs in Figuring out whAt A stoCk’s iDEAl vAluE shoulD BE. to Do this, grAhAm BEliEvED thAt BEForE Buying A stoCk, An invEstor shoulD AnAlyzE thAt CompAny’s AssEts AnD liABilitiEs to DEtErminE its truE FinAnCiAl situAtion. iF thAt situAtion lookED gooD, AnD sEEmED As iF it shoulD Allow thE CompAny to CommAnD A highEr stoCk priCE thAn it wAs ACtuAlly ChArging, thEn it wAs A gooD Buy.
whEn it CAmE to DEtErmining whiCh stoCks wErE BElow iDEAl mArkEt vAluE,BEnjAmin grAhAm EmphAsizED stuDying thosE AspECts oF A CompAny thAt wErE EAsily quAntiFiABlE. in his originAl vErsion oF thE thEory oF vAluE invEsting, hE simply lookED For stoCks thAt wErE trADing For slightly lEss thAn thEir so-CAllED "Book vAluE."A、CompAny’s Book vAluE is how muCh nEt worth it hAs ACCorDing to its ACCounting Books, whiCh list All oF its liABilitiEs, ExpEnsEs, rEvEnuE, AnD AssEts. most EConomists lAtEr viEwED this As A FlAwED ApproACh, sinCE somE AssEts, suCh As ComputErs, trACtors, AnD CArs, DEprECiAtE in vAluE Almost As soon As thEy ArE ACquirED、thEy ArguED thAt thE vAluE oF A CompAny’s AssEts shoulD BE mEAsurED not By thEir Book vAluE, But By how muCh monEy thEy wErE likEly to mAkE thE CompAny in FuturE. othErs pointED out thAt somE inDustriEs ArE so unstABlE thAt it is DiFFiCult to mEAningFully quAntiFy thE AssEts oF thE CompAniEs involvED in thEm. still othErs hAvE CritiCizED grAhAm’s thEory For ignoring FACtors thAt CAnnot BE EAsily quAntiFiED, suCh As thE quAlity oF A CompAny’s lEADErship.DEspitE this CritiCism, stuDiEs hAvE shown thAt vAluE invEsting sEEms to inCrEAsE An invEstor’s ChAnCE oF mAking monEy on thE stoCk ExChAngE.
to most pEoplE toDAy, grAhAm’s BAsiC thEory mAy sEEm likE littlE morE thAn Common sEnsE; yEt thErE ArE still mAny invEstors who Allow thEmsElvEs to gEt CAught up in thE ExCitEmEnt oF mArkEt FluCtuAtions AnD who stop mAking rAtionAl invEstmEnt DECisions. wE sEE this in thE CrEAtion AnD Bursting oF stoCk BuBBlEs.A、stoCk BuBBlE oCCurs whEn pEoplE FoCus purEly on mArkEt trEnDs without stopping to ExAminE thE ACtuAl worth oF thE CompAniEs whosE stoCk thEy ArE Buying. normAlly, this is DrivEn By A BEliEF thAt CompAniEs
in A CErtAin sECtor ArE on thE vErgE oF A BrEAkthrough thAt will DrivE thEir proFits up. invEstors pour monEy into Buying thEsE CompAniEs’ stoCks, whiCh DrivEs up thE stoCks’ priCE. this in turn mAkEs thEir invEstmEnt sEEm gooD to othErs, who thEn Follow suit, Driving thE priCE up EvEn highEr AnD EnCourAging still morE pEoplE to invEst in thosE stoCks. this upwArD CyClE CAnnot ContinuE inDEFinitEly, howEvEr.EvEntuAlly, thE stoCk priCEs ArE so muCh highEr thAn thosE CompAniEs’ FinAnCiAl positions shoulD Allow thAt somE oF thE invEstors gEt nErvous AnD stArt sElling stoCk. thE priCEs thEn BEgin to Drop, AnD EvEryonE involvED pAniCs, trying to sEll At thE sAmE timE, rEnDEring thosE stoCks virtuAlly worthlEss.
in A vEry rEAl sEnsE, thE stoCk mArkEt CrAsh thAt lAunChED thE grEAtDEprEssion wAs A rEsult oF thE First stoCk mArkEt BuBBlE Bursting. thE proBlEm wAs thAt sinCE no onE knEw AB