Ben Graham on Courage

Legendary investor Benjamin Graham once wrote, “In the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand.”

Courage comes in many different forms – and to be clear, when it comes to investing, courage ranks near the bottom of the list when it comes to defining that term in an absolute sense. As I write from the comfort of my air-conditioned office on a tropical island, I am very aware that there are a number of heavily armed 22 year olds standing watch on my behalf in parts of the world I hope to never visit. So let’s be sure to keep this in perspective.

Nonetheless, the market over the last few weeks has required some courage from the long-term investor. And I once again find myself reminding my own investors that if they can summon that courage, I will do my best to make sure they are adequately rewarded for doing so.

Fear and panic is everywhere out there right now. But it is overblown. I have all of my own money still in the market because (a) valuations are very compelling and (b) the most likely scenario looking ahead is (still) that the U.S. economy will muddle through, Greece will get its latest bailout tranche, and American businesses will continue to slowly drag the rest of us out of this mess. There won’t be a “Lehman event” in Europe, if for no other reason than because everyone expects there will be a Lehman event in Europe.

In the meantime, there are excellent opportunities out there – if you can summon a little steel. Not a lot, mind you. Just a little. And if prices go down more, we will buy more of them.

That all sounds cliched and foolish, I suppose, to traders and armchair economists, but so be it. You can have the next three months. I’ll take the next three years.

This is not 2008. Bonds – not stocks – are forming the next big bubble. 10-year Treasury TIPS bonds paid a negative return not too long ago. Think about that: a guaranteed 10-year negative return. The dividend yield alone on the S&P 500 is more than 2%. U.S. companies are squeezing record profits through productivity gains. And though the U.S. economy staggers and stumbles, nearly half of sales by the largest U.S. companies are from overseas – some of which are, believe it or not, doing okay these days.

It is always a difficult time to invest. Always. Over time, however, valuations will matter. They always do.

And as Ben Graham also wrote, “Price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.”

Stay in the game. This, too, shall pass.

Cale Smith

About Cale Smith

Portfolio Manager at Islamorada Investment Management.
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One Response to Ben Graham on Courage

  1. Jdpeak says:

    Are you still in $TNDM? Any update to your thesis?