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Value investing’s challenge

There was equity investing before Graham & Dodd and it was powered by snake-oil salesmen and voodoo economics. Then came the publication in 1934 of Security Analysis, the book always referred to as ‘Graham & Dodd’. Since then, the analysis of equity investing has acquired the trappings of rigour as more and more algebra has taken the place of alchemy, but the psychology of the game remains stuck in the past.

It’s understandable why psychology should lag rigorous analysis or – to put it the other way around – why analysis should have so little impact on investors’ psychology. After all, by instinct we’re still in the stone age and this helps explain why styles of investing swing in and out of fashion. The style with which the Benjamin Graham half of Graham & Dodd is always associated is value investing, which has been as fashionable as Bri-Nylon these past few years.

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