A CHRONICLE OF CALAMITY

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Now let’s take a moment to look at some of the major financial developments of the past few years:

1. The worst market crash since the Great Depression, with U.S.stocks losing 50.2% of their value—or $7.4 trillion—between March 2000 and October 2002.
2. Far deeper drops in the share prices of the hottest companies of the 1990s, including AOL, Cisco, JDS Uniphase, Lucent, and Qualcomm—plus the utter destruction of hundreds of Internet stocks.
3. Accusations of massive financial fraud at some of the largest and most respected corporations in America, including Enron, Tyco, and Xerox.
4. The bankruptcies of such once-glistening companies as Conseco, Global Crossing, and WorldCom.
5. Allegations that accounting firms cooked the books, and even destroyed records, to help their clients mislead the investing public.
6. Charges that top executives at leading companies siphoned off hundreds of millions of dollars for their own personal gain.
7. Proof that security analysts on Wall Street praised stocks publicly but admitted privately that they were garbage.
8. A stock market that, even after its bloodcurdling decline, seems overvalued by historical measures, suggesting to many experts that stocks have further yet to fall.
9. A relentless decline in interest rates that has left investors with no attractive alternative to stocks.
10. An investing environment bristling with the unpredictable menace of global terrorism and war in the Middle East.


Much of this damage could have been (and was!) avoided by investors who learned and lived by Graham’s principles. As Graham puts it, “while enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street it almost invariably leads to disaster.”
By letting themselves get carried away—on Internet stocks, on big “growth” stocks, on stocks as a whole—many people made the same stupid mistakes as Sir Isaac Newton. They let other investors’ judgments determine their own. They ignored Graham’s warning that “the really dreadful losses” always occur after “the buyer forgot to ask ‘How much?’ ” Most painfully of all, by losing their self-control just when they needed it the most, these people proved Graham’s assertion that “the investor’s chief problem—and even his worst enemy—is likely to be himself.”
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from The Intelligent Investor book by Benjamin Graham