This is a summary of Chapter Three: A Century of Stock Market History: The Level of Stock Prices in Early 1972 of The Intelligent Investor By Benjamin Graham . The investor's portfolio of common stocks represents a small cross-section of the stock market and prudence suggests that an investor should have an idea of stock market history, particularly the major fluctuation in price level, and the relationships between stock prices as a whole and their earnings and dividends. This provides a background for the investor to form some judgement of the attractiveness or dangers of the market level at different times. Graham presents data of 100 years, going back to 1871, in order to show in general how the underlying value of stocks have increased through the many cycles of the century and by viewing the data in terms of consecutive ten-year averages, to establish the relationship between stock prices, earnings and dividends. He summarizes the long-term history of the stock market
This is a summary of Chapter Two: The Investor and Inflation of The Intelligent Investor By Benjamin Graham . The loss of purchasing power due to inflation in the past and the fear (or hope by speculators) of further losses in future had influenced the thinking of Wall Street. People with fixed dollar income will suffer when cost of living rises and the same applies to fixed amount of dollar principal from bonds. On the other hand, there is a possibility for people who hold stocks that the loss of purchasing power may be offset by increases in both dividends and share prices. Based on the above, many financial authorities have concluded that: bonds are inherently an undesirable form of investment common stocks are by nature more desirable investments than bonds Graham feels that readers should recognize that even high quality stocks cannot be a better purchase than bonds under all conditions, i.e. regardless of how high stock prices may be, or how low the current dividend retu