Benjamin Graham, the investing guru who taught and inspired a young Warren Buffett, died in 1976, yet his brilliant investing wisdom survives today in texts, transcripts, books, and the minds of his many successful proteges.
Case in point is Graham's 1963 speech titled "Securities in an Insecure World." Let's dive into the speech for the wisest and most billionaire-inspiring quotes and lessons.
1. On inflation
Today, with inflation near zero and countless pundits predicting a dramatic spike in consumer prices as a result of Federal Reserve policies, inflation is as good a place to start now as it was in 1963. Graham said:
My conclusion here is that investors' feelings and reactions regarding inflation are probably more the result of the stock market action that they have recently experienced than the cause of it. Consequently there is a great danger of investors giving inflation too much weight when the market advances and ignoring it entirely ... when the market declines.
In other words, financial history is a whole lot longer than just the past 10, 20, or even 100 years. It's incredibly hard to predict how macro phenomena will play out, so invest conservatively and for the long term.
2. On change and gaming the market
We'd all love to discover some timeless formula that predicts exactly what the market will do next -- a crystal ball of capitalism, if you will. Of course, will never happen, and Graham explains why:
Unfortunately in this kind of work, where you are trying to determine relationships based upon past behavior, the almost invariable experience is that by the time you have had a long enough period to give you sufficient confidence in your form of measurement just then the new conditions supersede and the measurement is no longer dependable for the future.
There is no magic formula that will automatically tell us whether an investment will make us rich. The better strategy is to invest carefully and steadily over your entire working career.
3. On Wall Street's very short memory
We'd all like to think that the lessons of the financial crisis are now branded into the consciousness of Wall Street forever. Sadly, history has proven that hope false time and time again throughout modern history. Wall Street has a bad habit of forgetting the lessons learned from one crisis and repeating them in the next. Short-term memory loss in the markets is nothing new, as Graham discussed nearly 52 years ago:
The argument that common stocks are and always will be attractive, including the present time, because of their excellent record since 1949 -- involves in those terms a very fundamental and important fallacy. This is the idea that the better the past record of the stock market as such the more certain it is that the common stocks are sounds investments for the future .... As I see it, the real truth is exactly the opposite, for the higher the stock market advances the more reason there is to mistrust its future action.
4. The "many-billion-dollar question"
So what will the market do next? Graham explains:
Because that relationship [referring to a relationship between stock and bond yields at the time] has existed for the past five years, does it represent a permanent relationship for the future, or is it only an indication that the stock market has been clearly overvalued for five years, in the same way that it was clearly undervalued during the period 1949-1954? This is the many-billion-dollar question.
You won't be able to get the answer to that by mathematics; you won't be able to get it from an expert such as me or anybody else; so you'll have to answer that question for yourself.
Becoming a billionaire clearly isn't easy. The beauty, in my opinion, of Ben Graham's philosophies is that they are simple, repeatable, and applicable by the everyday investor. You don't need an Ivy League MBA or a job on Wall Street. You just need to think independently, put in the work, and stay consistent over the long term.
Do that and, as Graham said, you'll answer the billion-dollar question for yourself.