Ben Graham Laughs at Logic

Sometimes, the success stories almost make you wonder if you're doing the right thing. Why should I carefully and seriously pick out my investments when people like 20-year-old student Jake Freeman are making fortunes doing the opposite?

Freedman is the Canadian college student who famously made $110 million in the space of a few weeks in 2022 by betting on a meme stock. His net profit was about $83 million. (His investment vehicle was Bed Bath & Beyond, which has since been delisted.)

Benjamin Graham wouldn't have recognized the terms "meme stock" or "meme coin," but he certainly understood the phenomenon they represent. Here's what he had to say:

Tradition, sentiment, vague generalizations, unsubstantiated rumors, can never be made the basis of sound investment or intelligent speculation. Now and then large profits are realized on no better foundation — merely proving that sometimes luck laughs at logic.-- Benjamin Graham

We'd all like to win the lottery, but for every winner, there are millions of losers. Remember Alex Kearns, who started trading shares with just a few thousand dollars to his name. Kearns got into trouble with options and leverage and committed suicide a few months later, owing some $730,000.

You can’t plan for the lottery. But you can plan for earnings, cash flow, and a margin of safety.

Today's is the third in this week's Ben Graham focus. If you missed them, there's still time to read Monday's Ben Graham on Beating the Big Boys and Tuesday's Ben Graham and the Triviality of the Market.

Go deep with Graham in one of his books: Security Analysis of The Intelligent Investor.

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