Origins of Value Investing

The origins of Value Investing has been pushed even further back than Henry Clews.

I am currently reading “Devil Take The Hindmost,” by Edward Chancellor. The book is an excellent review of the history of speculative activity in the financial markets. One quote that I wanted to share was from Richard Steele, an English writer who wrote a publication called the Spectator in the late 17th and early 18th centuries.

“Nothing could be more useful, than to be well instructed in his Hope and Fears; to be diffident when others exalt, and with a secret Joy buy when others think it is their interest to sell.”

Sounds just a little like Warren Buffett when he says:

"Try to be fearful when others are greedy and greedy when others are fearful."

Words of Wisdom - Part II

More words of wisdom from Henry Clews to get us through the harrowing market that we find ourselves stuck in. Henry Clews lived from 1836-1923 and wrote several books on his views and experiences on Wall Street, including "The Wall Street Point Of View" and "Fifty Years in Wall Street."

"I cannot refrain from expressing the opinion that there are permitted to exist in this country conditions which needlessly aggravate the perils of financial upheavals, when they occur. In every panic much depends upon the prudence and self-control of the money-lenders. If they lose their heads, and indiscriminately refuse to lend, or lend only to the few unquestionably strong borrowers, the worst forms of panic ensue."

Just like back then, banks hold the keys to the recovery.

"If, on the contrary, they accommodate to the fullest extent of their ability the larger class of reasonably safe borrowers, then the latter may be relied upon to protect those whom the banks reject, and thus the mischief may be kept within some bounds. Everything depends upon anxiety being held in check by an assurance that deserving debtors will be protected. This is tantamount to saying that all depends on the calmness and wisdom of the banks. They may easily mitigate or aggravate the severity of the crisis according as they are prudently liberal or blindly selfish."

The Words of Wisdom of Henry Clews

Henry Clews lived from 1836-1923 and wrote several books on his views and experiences on Wall Street, including "The Wall Street Point Of View" and "Fifty Years in Wall Street." Here's a quote that seems to sum up very succinctly and without emotion what we are going through now:

"The action of commerce, like the motion of the sea or of the atmosphere, follows an undulatory line. First comes an ascending wave of activity and rising prices; next, when prices have risen to a point that checks demand, comes a period of hesitation and caution; then contraction by lenders and discounters, and then a movement, in which holders simultaneously endeavor to realize, thereby accelerating a general fall in prices."

"Credit thereupon becomes more sensitive and is contracted; transactions are diminished; losses are incurred through the depreciation of property, and finally the ordeal becomes so severe to the debtor class that forcible liquidation has to be adopted, and insolvent firms and institutions must be wound up. This process is a periodical experience in every country, and the sharpness of the crisis that attends it depends chiefly on the steadiness and conservatism of the business methods in each community affected."

What we are going through now is no different than what other generations experienced. We are probably better off because we have more of a social safety net and an activist government to smooth the rough edges of this downturn.