Time – Benjamin Graham was well prepared for the Crash of 1929. The now legendary investor had hedged his bets: he would buy preferred stock in a company and sell short common stock in the same company. When stocks crashed in October 1929, common shares fell much faster than preferreds, and Graham made a lot of money off short sales. <\/p>\n
But after the crash, most of those preferred shares seemed so cheap that Graham couldn’t bear to part with them, he wrote in his memoirs<\/a>. They kept falling, and his profit soon turned to a loss. His fund (equivalent to a modern hedge fund) ended the year down 20%. In 1930 it dropped 50.5%; in 1931 16%; in 1932 3%. "The stock market," as Graham resignedly put it in the first edition of his book with David Dodd, Security Analysis<\/span><\/a> (1934), "is a voting machine rather than weighing machine." <\/p>\n It had actually begun voting along with Graham by then — his fund gained 50% in 1933, and he did spectacularly well for himself in the next two decades. "In the short run, the market is a voting machine," he later took to saying, "but in the long run, it is a weighing machine." <\/p>\n