We know, we know. It’s been way too long, but we’re going to make up for it in two ways. First, we will not have a gap between articles like that ever again. Second, for a limited time we are reducing our monthly subscription from $5 to $1, and our annual fee from $50 to $10. This is your opportunity to enjoy unique, "detective-like" insights on economics, finance & investing for an entire year for the price of a coffee and a croissant.
Without further ado, let’s get back to it, there is much work to do.
In case you are a first-timer to F27, let’s do a quick recap. The core thesis behind this blog is that there is no consensus on financial definitions, chief among them, “investing.” Further, that lack of consensus is extremely costly for America. To be clear, speculation, in and of itself, is not a bad thing. The problem is speculating when you are thinking you are investing, which is also being sold to you in headlines across mainstream and social media as truth.
We’re writing several books on this concept, too. Court of Finance, the first book we will publish, uses a half basketball court to help you appreciate what investing means and how it differs from speculation. The line between the two has always been blurry but it is much worse today; the line has completely disappeared. Fictionary, our second book, tells the story of how we got here as a society.
It is hard to imagine this now, when “investing” in crypto is all the rage, but there was even a time when common stocks were not considered investing. In Part I of this series, we took you through two competing views: i) common stocks are not investing vs. ii) common stocks can be investing. It was Lawrence Chamberlain vs. Edgar Lawrence Smith. Edgar Lawrence Smith was correct, but the world needed to wait a few more years for a charismatic and well-spoken prodigy to earn a little more experience on Wall Street and start disseminating that message.
Many books have been written on Ben Graham. Benjamin Graham on Value Investing: Lesson from the Dean of Wall Street by Janet Lowe has the wrong title, but it includes some good details on Graham’s life. Ben Graham was born in London on May 8, 1994 as Benjamin Grossbaum. When he was one, his family moved to New York to expand the family business. They imported china, pottery, and bric-a-brac from Austria and Germany. The dad, Isaac Grossbaum, died of pneumonia at the age of 35. He was survived by his wife, Dora, and three boys. Ben, the youngest, was only 9 at the time.
Dora tried to keep the family business running, but was unsuccessful. She then tried to run a boardinghouse, but that didn’t work out either. Then she bought some U.S. Steel stock, which lost almost half its value in 22 months. While it would eventually recover, it was too late for Dora. It appears that experience, while painful, was instrumental in Ben later figuring out what investing means.
Showing great aptitude for numbers and math at an early age, Ben would eventually enroll at Columbia University. He made a great impression on his teachers and received three teaching position job offers in the English, Mathematics and Philosophy departments. The teaching had to wait, however. There was an opportunity to join the Wall Street firm Newburger, Henderson & Loeb. Perhaps still scarred from the family experience, Ben went down to Wall Street in 1914. In 1923, he left to set up his own partnership, the Grahar Corporation. In 1928, he began teaching investment classes at Columbia.
According to Janet Lowe, the catalog description from Ben’s class was:
Investment theories subjected to practical market tests. Origin and detection
of discrepancies between price and value.
When Graham wrote his seminal book Security Analysis in 1934 (co-authored with David Dodd), he would define investment as:
An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.
His message then, at its core, was effectively the same as Edgar Lawrence Smith’s, who talked about i) constancy of income; and ii) safety of principal.
Graham’s definition is sound, and while some subjectivity is involved, the boundaries between investment and speculation are clear.
Now things get real interesting as one can combine these two words into a single phrase: “speculative investing.” Our next couple of articles will cover what that means and what the implications are for crypto.