Ridiculous Anomaly

By Ramesh Akkineni

Benjamin Graham in his Memoirs

We both agreed that the stock market had advanced to inordinate heights, that the speculators had gone crazy, that respected investment bankers were indulging in inexcusable high jinks, and that the whole thing would have to end one day in a major crash. I recall Baruch's commenting on the ridiculous anomaly that combined an 8 percent rate for time-­loans on stocks with dividend yields of only 2 percent. To which I replied, "That's true, and by the law of compensation we should expect someday to see the reverse-2 percent time-­money combined with an 8 percent dividend on good stocks." My prophecy was not far wrong as a picture of 1932-and it was borne out precisely, under a different set of market circum­stances, some twenty years later. What seems really strange now is that I could make a prediction of that kind in all serious­ness, yet not have the sense to realize the dangers to which I continued to subject the Account's capital.

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