The Intelligent Investor

Graham provides a historical overview of the stock market from 1871 to 1972, grouping trends into multi-year cycles and illustrating the relationship between stock prices, earnings, and dividends.

He focuses on the period from 1900 to 1970, identifying three distinct phases within that time range. The first, lasting from 1900 to 1924, saw an average annual growth of just 3%. The second phase encompassed the bull market of the late 1920s as well as its subsequent collapse, followed by irregular stock market movement until 1949. As Graham says, this downturn set the stage for the “greatest bull market in our history” (67), which reached its peak in 1968.

He notes that the fluctuations of this 70-year period even out to an overall depiction of long-term growth. Though he acknowledges that the rates of growth for prices, earnings, and dividends all varied, he says that the general historical picture bolsters the argument for including common stocks in the intelligent investor’s portfolio.

However, he does mention some warning signs for the years to come, indicating that the boom years of the ’60s may be coming to a close. For instance, he notes that price/earnings ratios increased significantly in the decades after WWII, alluding to the fact that the market may now be too bullish.