It was the spring of 1976. Investors were still licking their wounds from the severe bear market of 1973-74. Donaldson, Lufkin & Jenrette, an investment bank, was hosting a conference that matched two investing legends onstage at the same time — Ben Graham and Charles Ellis.
Ellis, moderating a Q&A, asked Graham why the mid-1970s were such a disaster in the stock market for most investors. Graham replied that, “most investment professionals, although possessing above average intelligence, lacked an overall understanding of common stocks.”
As told by Robert Hagstrom in his book Latticework: The New Investing, here’s where Ellis and Graham picked up after the conference:
After the seminar, Graham and Ellis spent some time together, and the conversation continued. The problem with our industry, Graham insisted, is not speculation per se; speculation has always been a part of the market and always will be. Our failure as professionals, he went on, is our continuing inability to distinguish between investment and speculation. If professionals can’t make that distinction, how can individuals investors? The greatest danger investors face, Graham warned, is acquiring speculative habits without realizing they have done so. Then they will end up with a speculator’s return — not a wise move for someone’s life savings. (more…)