100Baggers

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100-BAGGERS
Of course, Dix was right, and the worst was yet to come. “I have often
wondered what my life would have been like it [sic] if I had followed his advice,”
Graham muses. Graham suffered mightily in 1930, his worst year ever:
1929
1930
1931
1932
For entire period
Benjamin Graham
Joint Account
-20%
-50%
-16%
-3%
-70%
Dow Jones
Industrials
-15%
-29%
-48%
-17%
-74%
After 1930, he did unwind the debt he held in his account and he did
much better thereafter in what was a mercilessly difficult market. Given that
Graham’s partnership had 44 percent of its assets financed by debt going
into 1930, just pacing the market would have wiped him out. Irving Kahn,
another great old investor and student of Graham’s, wrote of Graham’s ordeal
in the 1930s, “Keeping the fund alive was a great achievement. The
small losses of 1931 and 1932 were especially impressive.”
Graham’s big mistake was using too much debt. That’s why Dix told
him he shouldn’t be able to sleep at night. Dix appreciated just how dangerous
all that leverage was. The inspiration in Graham’s tale, though, is that
he fought his way back and went on to earn good returns in the market in
later years.
The lesson he learned is a lesson we have to learn in every cycle,
it seems.