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    Benjamin Graham

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    14 views7 pages

    Ben Graham Interview

    Uploaded by

    vinaymathew
    Benjamin Graham

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    em With BENJAMIN GRAHAM Expert on Investments HOW TO HANDLE YOUR MONEY Never before have so many people had extra money out of income to save or invest. Millions wonder where to put this money for safety, return, rise in value. De U.S. savings bonds pay enough? Is common stock safe? What advantages de municipal bonds offer? What about corporation bonds? To get competent answers to these ond ‘AY NEW YORK @ Do you recommend, Mr. Graham, that 2 man of mod= erate means include, as a general rule, some common stock ‘when he invests his savings for the long. ts ‘A My answer would be definitely “Yes, conditions Q Why? A Becise common stocks have the advantage, in the frst instanee, of representing sound, grow protection against inflation—against further kind we've lived through as a result of the last @ Would you say there is some risk in not ‘common stocks in long-term savings? ‘A Yes. The esperience of my lifetime has shown tt is a very definite risk to have your investment only in bonds Q Will you detail that a bit for us? A Yes, Since 1913, the price level has appruaimately tripled, and, at the same time, interest rates have gone down a good deal. The old bonds with high coupon rates have been pretty well called, no longer exist. The result is that the man ‘whose investments were solely sn bonds has sulfered both a reduction in income return on a percentage basis and a large reduction in the purchasing power of whatever income or principal he had. {@ Will you give us the other side of that now? What would have happened to the same man if he had bonlht some stocks? ‘A Well, if he would have diversified his holdings among representative common stocks in 1913, or jn most other periods since 1913, he would have had an advance int value tnd io income which would have at least kept pace with the rise in the cost of living. '@ Now a man with an income of, say, $5,000 whe has but litle that stock for him? a2 other questions now raised for so mony, U. S. News & World Report consulted an authority. Benjamin Graham, security onalyst and widely read author on investments, was one of the experts invited by the Senate to testify at recent stock-market hearings. Mr. Graham also is adjunct professor at Columbia University’s School of Business, where he teaches investment analys ‘A On the whole, T would say “No,” largely because what he could gain by having a common-stock component in his savings isn't Tange enough to warrant the amount of intelli gence and character needed to carry on an investment pro- ‘gram in common stocks soundly. @ He would be hetter off to buy something principal and a fixed return? 80, even though ft involved some risk of loss of @ And in a situation like that, would you recommend, say, No. 1, insurance and. No. 2, Government bonds? Or what we and Gov- the usual combination of ins ernment bond is correct ‘What is that com what proportion? ‘A Well, that’s dificult to say, because T think the insor- ance depends almost entirely om his protection requirements, don’t believe that the amount of insuzance should be related tw his savings program particularly. The savings ate important in insurance, but they are incidental Perhaps 1 should correet my previous statement a litle bit boy saying that i€ ie possible for the sinall man, the $5,000 who wishes to build up an interest in common stocks out of his nither modest savings, to do so reasonably well by following one of these aecumslation programs in the fawvestmentsfond area {@ Investment companies? A Yes, investment companies. Yes, he could do it, and 1 think on balance it wnld probably be better for him to do it if he wants to do so rather than not ty do it. There are som: risks involved iw that program, but there are also some ail vantages, 0, Q If he goes into that, you would recommend three ele ments, then: whatever insurance his family needs for prote on, some savings bonds, and some investment-compan archases? ‘A That is right, yes. U.S. NEWS & WORD REPORT, June 2,16: Who Should Buy Common Stocks ... Ways to Offset Wide | Price Swings . . . Investing at Different Income Levels ings bonds? ‘A Oh, yes. I see no reason whatever for the small man to {nvest in Government securities other than the very attractive savings bonds which he now ean buy. @ You think they are a good buy for the average man? A A very good buy in terms of fixed-interest investments. Q You are talking primarily about the E bond? A The H bond and the E bond. Actually, the E bond is better than the H bond because a-man who is saving docsn't heed to got current interest and reinvest it. Ifs better to have t compounded for him automaticaly. Q This $5,000 man we were talking about— ‘A Actually, 1 should like to say this about the $5,000-2-year man. The original ‘question assumed that his $5,000 was pretty well fixed, But that may be rather Tmnrealistie, Most $5,000-a-year men are tespecting to car moro than that as they 0 along, in one way or another. “The young man who has reached $5,000 in his career naturally expects to do bet ter, and it woulda’t hurt him at all to start | @ When you speak of Government bonds, you mean sav- ‘out in some common-stock program and et an education in common stocks, in put, by practice @ He’ would get mostly education, wonldn't he? Because he wouldn't have ‘cnomgh surplus ineome to invest much No, but [ mean he could start with ‘ye sill amount that he has in his savings oro something ia the “common-stocks lok! ore advantageously for his future ‘pera than in connection with anything he may accomplish hove, Foe example, he's going to make mistakes, its botter ‘hat he make them with the sinall amount of money that he Jhov than with a larger amount of money that he might have fates ‘Q Would you say there are many men in the $10,000 snd '820,000 group who should be buying stocks but who are not? ‘A 1 put it this way: There are thousands who should have enn buying stocks and who didn't. @ iw with the market level aside— ‘A Shunket level aside, 1 would say that $10,000 to $20,000 ies: wunll be well advised, as a whole, to have a systematic fwvestinen! program im common stocks. {© Huw shonld their investments be divided, roughly? A Ov the whole, they can go higher in the common-stocks estiuin thaw the persons who don’t have eamings inde {pooutra ot cupital, They eould get into the two-thirds-com- Aton-atovks asia very soundly, 0 Why? A 1 think snainty because of the fact that they ean take the tithe wovulveat in changes in the economic situation from year BENJAMIN, GRAHAM to year with more equanimity than those whose sole Snaneial support is their capital funds. @ You mean they are less likely to face a time when they have to sell their stocks whether they want to or not because they find that the price has gone dovwn—is that i ‘A That's the way its usually expressed, but my experience ‘has been that its not the outer compulsion that governs it so ruch as the inner compulsion, drive, the inner apprehension. Most people sell stocks at low prices not because they have to but because they are seared. Q They won't hold on long enough? A They won't see the situation theough. Lets take a widow who has all her money fn common stocks, or nearly all, and i doing pretty well with it for a while. Then the market has one of its old lashings, it collapses, and she finds her principal value freatly reduced, She is likely to get so panicky that she might sell out at the bottom, or near the bottom, and have harrowing experience 2s a result of that ‘A businessman or man with a career ‘earning a good deal of money may do the same thing, but he's not as likely to do it, particularly if he has educated himself to Jmow and be familiar with the normal vicissitudes of the stock market @ You were talking about putting two thirds of savings for the long term in ‘common stocks. Which man is that=which man should do that? ‘A That would be the $10,000 to $20, 000-a-year eamer who feels he may go farther than that in the future. @ Ase go on up higher, as we get into $25,000 and $30,- 000, would you recommend a higher proportion in common stocks? ‘A I don't believe so, because, when you get beyond that range, you get to a different question where i's not so essen- tial to try to get the maximum results out of your investment, Dut it becomes important to feel that you are protected against any eventuality. ‘One of the advantages of having a lot of money is that nothing should be able to hurt you. If you have a fair amount ‘of your money in the Government-bond area and another fair Amount in common stocks, you're in an ideal position. 'Q Do you recommend corporate bonds for the man making 20,0007) ‘A No. I don't see any reason under conditions today, and those we've seen for many years past, why a man should buy ‘corporation bond Q Why? [A The yields of the good bonds are only slightly in excess ‘of what he could get on U.S. savings bonds. On the secon- (Continued on next page) ome A won #EFORT, June 2.1955 4a Intervie Werstemmm meni Sa MATRON OS ATS ATT. ... “Investing a few thousand—you can't do it casually, by tips” grade bonds, the risk element offvets, aypemsinately at fest the ndditional income. There is, of cunse, the question of tax-exempt bonds, whieh is a separate bactors a $20,000 eae mnmartied man svt find tee ts escapls interest Mvereas the marr ysis vill, S2iN(KH0 cone probably wwonkln't @ Weve heen talking wp to now, hy implication at Teast, newne. Is there 2 stage at for long-term appreciation advance in the mae- fran he anade by waht i, ache Let ale ob at seenely? Ah. ves thin Ale cathy part of one’s eareer, iu busi vice ai the. puntessios. st som ave eonsilerable interest in fiooucial mutters many people aye, and want to educate ils tary snatch it Rinanee, there, if you wish to get HI shang unl of your edeation, the advantage would incestient for appreciation, The rewaves are greater, of suse i appreciation than they are in income, and there's ‘ns aeason why a person shouldn't aim at those things {Q tren at s relatively low income level? ‘A He could do that, too, as a-matter of fact, and get more interest wut of life, being a skillful investor for appreciation on 1 small seale, than Ie would if he just did it to get a Few Ulalrs a year ineome. 'Q Yow think the average person is capable of doing this? A Well, taking everything into account, I would say “No, | mean if you tools a person at random and gave hin the ideal surroundings and edueation and counsel, and so on, you might tuum him into a person capable of doing this, But, under the Greunstances in which he lives, he probably would nat do a good job, Q Who would, then? {A It world be good for a person who has considerable mas tive intelligence and ability and who has a real dnterest in financial matters andl i willing to devote the amount of time an energy 0 it 'Q And who has time for it—the time is important? {A Well, everybody has enough time for it Its really the that ents, T mean, investing a few thousand tlallars nota falltime job, But itis a job that you can’t do Ccasally. by tips, and so forth, ‘Where can the average my dues he 20 aboot it? "A You mean his education, Information ig one thing and celieation is anther, a amore fimdamental thing. in eonnece ‘Son with investment, Naturally, the way he can do that is by mnitsuing some of the avennes of instruction that are open, He ean take courses, as many do, Those who are in New York ‘oF came, hawe a better opportunity than those who are in small tows @ Arou strvction, ea they? "A Well, the average man won't do it, But J wouldn't be willing to asinit that he can't da it. A person who is really etennined 0 prepare himself 40 be an intelligent investor fean dit, For example, he ean take a correspondence course, You learn the fob just the way you leam to play the piano, @ What about the man who lives where such a course simply is not available? Ast matter of fact, most people aren't willing to devote the time for such courses, anyway. What's Ue next best thing? 'A ‘The vest best thing for him to do is to decide that he ‘eannot expect to get optimum investment results without this, How the country, though, many ean't get such i ‘optimum preparation, and consequently be hes to accept a ‘more representative or average investment program. He ean ‘lo that by deciding to follow a simple but very definite plan first, dividing his money into the compartments we discussed belore and, secondly, following a systematic and simple pro- cedure with respect to the eommon-stock components. For example, 1 suggest that he buy iovestment-company es on a regular basis. That brings in the concept of dollar averaging, which has now become so familiar and popular. That would be a sound procedure, The main thing for him is not to-go off suddenly on a tangent, believing that he had sividenly become an expert because the market has gone up fand he bas been making some money 'Q What do you mean by “dollar averaging”? A. Dollar averaging is a method of investment under which you set aside regularly a ixed amount of money and invest it Jn common stocks generally, either in a single common stock for preferably ia group investment through investiment- ‘company shares. By investing the same amount of money at regular intervals~say, every’ three months-you get two ad- vantages. One is that over the years your investment re flects the average market price rather than the high market Jvels—wwhich i where you ate likely to buy if you follow the crowd. ‘Secondly, the arithmetic of dollar averaging gives you more shores at the lower prices than at the higher prices, so that your average cast is lower than the arithmetical average. If You are putting $1,000 in one kind of stock and the price is 510, you'd get 100 shares. IF later i’ $20, you'd get 50 shares, ‘You bought more stock at the $10 basis than at $20, Conse ‘quently your average price would be less than $15. COMMON STOCKS: "They do carry some measure of protection ageins! inflation” 44 U.S. NEWS & WORD HEFORT, Jone 3, 1985 | | umm SS RITE TERETE RSME ..+ “Dollar averaging—the soundest and most simple plan” Q Do you think the dollar-averaging plan for an individual is sound? 1A Yes, I think i’s the soundest and most simple plan open tu everybody that I know of. Q About how long docs it take for dollar averaging to produce results? ‘A Over past experience, it’s generally felt that a seven-year petiod is akind of minimum. A 10-year period is usually the ‘one that is talked about. {Q That being the ease, one could start at any time? A Yes. The reason you talk about a 10-year period is that past analysis shows that had you started at any tne, even at the top of the market in 1929, you would have done all right, Dy 10 years later. 'Q Then the man of moderate means has two alternatives in buying stocks: If he hasn't a lot of time and know-how, he i well advised to buy conservatively, either to buy invest- iment shares or to buy. well-known stocks when they sre at reasonable prices. Or if he has 2 lot of time, then he can go into it with more detail, take more risks, buy lesser-known shares, and not he so conservative about it. Is that the sum of i ‘A L would question, in a way, your expression. You men- tion the fact that he would take more risks, snd that is the usual concept where one buys securities that are not so well known, But when you consider the matter earefully youl see that the purchase of securities that are not so well known at Tow prices-which is what a man wants to use his particular sll for—does not really involve more risk. Ti ‘on the whole. It only appears to be riskier Ihe doesn't have the time to think WATCHING THE PRICES IN A BROKER'S OFFICE “1A person who is really determined to prepare himself to be on out itor the knowhow, he's got buy something ike in

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