Bull markets make you feel smarter than you really are.
Bear markets make you feel dumber than you really are.
It’s almost impossible to avoid feeling like a know-it-all when things are going up and a know-nothing when things are going down.
That’s human nature.
Benjamin Graham started his investment partnership in the Roaring 20s with $400,000 of money from clients and his own capital. In just three years he turned $400k into $2.5 million. Much of it was Graham’s own money, derived from a combination of savings and the management fees he earned.
This magical run of performance just so happened to coincide with a melt-up in the stock market.
Alas, like most people, Graham didn’t see the Great Depression coming. He tried to pick the bottom on numerous occasions with disastrous results.
Michael wrote about what happened in Big Mistakes:
In 1930, thinking the worst was over, Graham went all in and then some. He used margin to leverage what he thought would be terrific returns. But the worst was not over, and when the Dow collapsed, Graham had his worst year ever, losing 50%. “He personally was wiped out in the crash. Having ducked the 1929 cataclysm, he was enticed back into the market before the final bottom.”
By 1932, the $2.5 million had dwindled to just $375k.
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