Six months before he died, the legendary investor Benjamin Graham gave an hour-long interview at his home near San Diego to a financial analyst called Hartman L. Butler, Jr. Thankfully, Butler recorded the interview for posterity on a tape recorder, and the resulting transcript makes for fascinating reading.
It was March 1976. Graham, who was 81 at the time, was widely known as the “father of value investing”. His principles had profoundly influenced notable investors such as Warren Buffett. Yet what comes over most strongly from the interview is that, in his later years, Graham’s views on investing appear to have changed.
Far from encouraging people to engage in detailed security analysis, as he did for most of his career, Graham advocates in his interview with Butler for a more straightforward approach. Most investors, he suggests, including institutions, should invest in index funds rather than individual stocks.
“The efficient market people have kind of muddied the waters, haven’t they?” Butler suggests, referring to the hypothesis, famously championed by Eugene Fama at the University of Chicago, which states that prices fully reflect all available information.
Graham replies: “Well, they would claim that if they are correct in their basic contentions about the efficient market, the thing for people to do is to try to study the behavior of stock prices and try to profit from these interpretations.” In other words, Graham was saying, instead of picking stocks, investors may instead be tempted to time the market instead, or try to buy and sell at the right time. But Graham made it clear it was not a course of action he would recommend.
“To me,” he went on, “that is not a very encouraging conclusion because if I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what’s going to happen to the stock market.”
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