On the eve of the 1929 Crash, Graham was managing what we, in the 21st century, would recognize as a hedge fund. He was long $2.5 million of stocks and bonds against which he was short the same amount. In addition, however, he had $4.5 million in outright long positions, and he had incurred substantial margin debt to own it. In his posthumously published reminiscences, Benjamin Graham: The Memoirs of the Dean of Wall Street (1996), the father of value investing described his state of mind this way: "We were convinced that all of our long positions were intrinsically worth their market price."
So Graham, by heavily mortgaging himself, unwittingly transformed a conservative investment strategy into a risky one. Top to bottom, 1929--32, his fund was down by 70%, a better showing than the 87% drop in the Dow but a calamity still. The once and future investment genius sorely needed income. Where could he find it?
Knowledge grows through sharing! To be the best, learn from the best! May all your dreams come true! Collections of Value Investing articles, interviews and videos, especially on Warren Buffett and Charlie Munger and articles from various disciplines to build "Latticework of Mental Models"
Thursday, December 13, 2007
Value's Day Once More
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