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Taming the Beast: Wall Street's Imperfect Answers to Making Money by Larry Light

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Prologue

The Rosetta Stone

Modern investing began when the world was burning down. Benjamin Graham, a celebrated financier who was in the middle of the flames, invented a systematic process of evaluating investments and popularized it during the Depression-ridden 1930s. It was a way for ordinary people to rebuild their decimated holdings.

Before, there had been no widely used investing systems. The capital markets were like wild frontiers. They too often operated on cronyism and outright fraud; they were swept by manias and laden with onerous debt. Cornelius Vanderbilt concocted a massive stock slide in 1869 by flooding the market with shares from his railroads, as a means of thwarting rival Jay Gould.

Ben Graham taught that investors must be analytical, flexible, and diligent about choosing and managing their holdings. He provided an orderly method of evaluating stock and bonds.

Hand in hand with that insight was the strategy he invented, called value investing, which aims to find cheap, underappreciated stocks. Inspired by his example, other investing systems later sprouted. Some extended Graham’s thinking; others were in opposition to it. All sought to tame the unruly market beast, which was capable of bringing both destruction and riches. It’s significant that the symbols of Wall Street are both animals: the bull (optimistic) and the bear (pessimistic). Graham taught that people should be careful when dealing with such powerful, dangerous creatures.

Taken together, the ...

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