Benjamin Graham and the Great Crash

Benjamin Graham and the Great Crash Posted on 19th November 2005 by Chetan Parikh <<<<< Back In an investment classic “The Memories of the Dean of Wall Street”, Benjamin Graham, writes about his personal experience of the Great Crash. “Nel medio del camin de mia vita Mi ritrova nel una selva oscura. (In the midpoint of the road of my life I found myself in a dark forest.) Thus Dante began his great poem, writing in the year 1300 at the age of thirty-five. His life's journey was in fact far more than half over, for he died in his early fifties-as had his idol Virgil; so did great Caesar, Shakespeare, Moliere, Beethoven, Napoleon, and many others. In 1929 I turned thirty-five, the age at which my father died. But I am writing these words in the summer of 1964, so that this chapter does, in a very real sense, represent a middle point for me. It would be an exaggeration to suggest that, like Dante, I too was about to get a full taste of Hell. Yet, there were times when I thought I was descending into ever lower circles of trouble and dis­couragement, the gloomier because they contrasted so sharply with my days of glorious success. In his exile Dante must have known that feeling well, and he put its most famous expression in the mouth of Francesca da Rimini: “Nessun maggior' dolore Che ricordarsi del tempo felice Nella miseria...” (But why did he add "and that your teacher knows"? Virgil suffered no misery except from his own dissatisfaction with his immortal work.) Actually, the first half of 1929 ushered in exciting and flat­tering events for me; and even the terrific shocks that came later in the year left me comparatively unharmed. My big troubles were to come in the following three years. Yet, in its implications, 1929 was as fateful for me as for the rest. The January vacation included one adventure of which I was anything but the hero. Jerome Lewine, who at a young age was really the senior partner of the old brokerage house of Hentz and Company, invited me and two others to go sailfish­ing with him. The other guests were a famously successful financial lawyer, named Isidor Kresel, and another lawyer named Oscar Lewis. We set out in a boat that seemed mighty small to me at the start, and seemed to grow smaller as we got farther from land. In a half hour or so I wasn't feeling so well, and neither was Oscar. To console us, perhaps, our host unwrapped some pretty sandwiches and offered us our choice. Our hands had just about strength enough to wave them away. When the pint-sized Kresel and Jerry Lewine began eating with great gusto, the sight quite overpowered Lewis and me, and we crawled below, where we lay in the saddest state for what seemed like hours. Just when we were passing from the second fear (that we were going to die) to the third (that we were not going to die), we saw a figure in the hatchway: "Come up, Oscar, Ben," it shouted, "I've caught a sailfish." But we just moaned "Take us home" and turned our faces to the wall. Jerry reversed the prow towards port, and two hours later Oscar and I thanked him wanly as we tottered ashore. I did not meet Kresel again, but I read later with a certain sympathy of his prosecution by Max Steuer relating to a some­what technical infraction of the law in the Bank of United States collapse. Steuer was to submit me to three days of ham­mer-and-tongs cross-examination in the Kaufmann Depart­ment Stores valuation case in 1939. Oscar Lewis I was to meet again when he was special master in another valuation case and I was appearing as expert witness for a bondholder's com­mittee. I didn't recognize him at first, but he called me to the bench in an intermission and asked me how I could possibly have forgotten our sailfishing expedition together. And the sailfish that Jerry Lewine hauled in? There's a lit­tle story about that too. A month or so after the event I was invited to lunch in the Hentz Company's private dining room, where the proud host bade me admire a new ornament on the wall. It was that accursed sailfish, beautifully stuffed and ex­pensively mounted, with a silver marker telling where, when, how heavy, and by whom. "Turn that damned thing around," I begged. "Just to look at it makes me seasick all over again." But the others just laughed. Despite this sad experience in Palm Beach waters, I came back to New York beautifully tanned-so much so that my large class of palefaces at Columbia greeted my swaggering return to the podium with a long and loud stamping of their feet. During this period, various kinds of investment trusts were forming. The first ones had been fixed trusts, innocent enough in character, in which a bank held a specified portfolio of com­mon stocks as trustee (hence the name), and stockholders each held a pro-rata share in this unchanging portfolio. Next came the management trusts-companies whose officers could vary the portfolio, just as we were doing in the Graham Joint Account. There was nothing inherently unsound in such an arrangement; indeed, it had proven itself successful for many decades in England, although like any financial institution it needed honest direction and sound policy. However, the specu­lative atmosphere of the late 1920s had seduced or corrupted nearly everyone of importance in finance and led to unbeliev­ably shaky practices by firms of heretofore unquestioned probity. Not a few of the larger stock exchange firms formed their own investment companies, selling shares to their clients. They were lured into this practice by a threefold profit: a markup or load on the sale of the shares, a management fee for running the company, and the straight brokerage commissions on portfolio purchases and sales. The Hentz partners decided they were as fit as anyone to have their own fund-nay more so, because they thought they could persuade Ben Graham to head it up. I was by no means sure that I wanted the job, be­cause I could not expect to have a compensation arrangement approaching the 20 percent-50 percent cut I received from the Joint Account (though, of course, I was dividing part of it now with Jerry Newman). But the Hentz partners were rather insistent. They spoke of a fund of 25 millions, of the prestige I would enjoy as top man in so large a venture, of the guaran­tees I could have under a long-term contract. Jerry Lewine was enthusiastic about the possibilities of combining his well-­known talent for picking good market situations with my now widely acknowledged supremacy in finding special or bargain situations, and in security analysis generally. I was tempted by the big numbers being thrown around, and we had several conferences to see if we could put the thing together. In the meantime Bernard Baruch came into my picture in an unexpected way. A year or so before I had been privileged to meet the great man and to suggest to him a number of Gra­ham-type investments-all of which appealed to his keen sense of security values. These included such issues as Ply­mouth Cordage, which sold at about 70, earned and paid a handsome dividend, and had over $100 per share in working capital alone. Others of the same type were Pepperell Manu­facturing Company, long a household name in sheets and pil­lowcases, and Heywood & Wakefield, a leading maker of baby carriages. All were selling well below their minimal value as judged by the ordinary standards of a private business, and at ridiculously low levels in comparison with the prices of most popular stocks at the time. These discrepancies illustrated the peculiarly unreasonable character of the stock market of the late 1920s, where all the emphasis was laid on an industry's promise (favorites were electric utilities and chemicals), dom­inant size (companies in the Dow Jones Industrial Average), or else a record of recent growth, accompanied by speculative and manipulative ballyhoo. Many substantial companies with excellent long-term records which fell outside the favored cat­egories, like Plymouth Cordage and Pepperell, were neglected and sold for years on end at bargain-counter prices. Mr. Baruch deigned to listen to my analyses, to approve of my choices, and to buy substantial amounts of each. From his point of view, no doubt, his concurrence alone was sufficient reward for my pains. To some degree he was right, of course, because the mere knowledge that his judgment backed my own, and that we now had similar financial interests, was of substantial value to me. On two occasions, Baruch was to make an effort to secure my election to boards of companies in which we both held stock; in one he succeeded. But these moves he made not to help me but to improve his own invest­ments. In the fairly numerous contacts I have had in my career with this eminent personage, he never did anything helpful or generous for me as a person, nor did I ever hear of his doing so for anyone else. He had the vanity that attenuates the greatness of some men, and it may have been this vanity, rather than true generosity, that led him to give large sums to charities and causes, sums for which he received the wide recognition and acclaim he always coveted. We had several general conversations in his office far up in the forty-nine-story Equitable Building at 120 Broadway (our fund was destined to be part of a group that controlled that enormous structure). We both agreed that the stock market had advanced to inordinate heights, that the speculators had gone crazy, that respected investment bankers were indulging in inexcusable highjinks, and that the whole thing would have to end one day in a major crash. I recall Baruch's commenting on the ridiculous anomaly that combined an 8 percent rate for time-­loans on stocks with dividend yields of only 2 percent. To which I replied, "That's true, and by the law of compensation we should expect someday to see the reverse-2 percent time-­money combined with an 8 percent dividend on good stocks." My prophecy was not far wrong as a picture of 1932-and it was borne out precisely, under a different set of market circum­stances, some twenty years later. What seems really strange now is that I could make a prediction of that kind in all serious­ness, yet not have the sense to realize the dangers to which I continued to subject the Account's capital. Once when I was waiting in Baruch's office, he emerged into the antechamber with a stoutish, round-faced man of about the same age at his side. After a moment's hesitation, he said: "Winston, allow me to present my young friend, Ben Graham, a very clever fellow." We shook hands. I knew of Churchill's record in World War I and of his present displacement from the British government. It was a moment I should have savored more than I did. I owed another introduction to Baruch. Just after World War II, I was invited to hear a private lecture at Columbia by General Eisenhower on our military strength for the future. Baruch was there, and after the lecture he presented me, with a few flattering words, to the fabulous commander-in-chief. When I left the building, it had started to rain hard, and I opened the umbrella I had wisely brought. Just then General Eisenhower came out and stood for a moment next to me. "May I share my umbrella with you, General?" I asked. "Oh no, thanks very much," he replied and strode off into the rain. Military men in uniform are not supposed to use umbrellas, I guess. These two introductions I owe to Baruch, and I am grateful for them. But I can't help thinking, ungraciously per­haps, that the old man, now ninety-two (in 1964), owes me more than I owe him. Back to 1929. A message came from Baruch that he would like to see me in his office. When I arrived, his famous secre­tary, Miss Boyle, told me he was occupied and asked me to wait. After about a half-hour the financier came out, apolo­getic for once. He had been taking his afternoon nap, but Miss Boyle should have told him I was there. When we went into his huge office, lined with plaques of all sorts attesting to his achievements (and, indeed they had been great in peace and war), he told me that he was going to make a proposal to me that he had never before offered to anyone. He would like me to become his financial partner. "I am now fifty-seven years old," he said, "and it's time I slowed up a bit, and let a younger man like you share my burden and my profits." He added that I should have to give up my present business and devote myself entirely to our new partnership. I replied that I was highly flattered-flabbergasted, in fact-by his proposal, but I felt I could not end so abruptly the close and highly satisfac­tory relations I had with my friends and clients. And for that reason-and another that will be explained-the matter was dropped. How different, how much better, the next seven years would have been for me had I accepted his terms with­out thinking of other people! The negotiations with the Hentz partners for the establish­ment of a jointly run investment fund dragged on through sub­sequent months; I cannot recall what made them take so long. Then came the market's first serious sinking spell in August, and we decided to put the project on the shelf for a while. It was never taken down. Beginning in September, the terrific Crash cut stock averages in half in a matter of days, culminat­ing in a hecatomb in which millions of shares changed hands, the ticker ran hours late, and the DJIA dropped nearly out of sight. The prospect of a Graham-Hentz Investment Fund dis­solved into thin air. Newman and I turned our thoughts back to the Benjamin Graham Joint Account; there was plenty to think about. Here was its position in the middle of 1929: our capital was 2½ million; we had shown only a slight gain for the first half of 1929 (a fact that should have augured trouble ahead). We had a large number of hedging and arbitrage operations going, involving a long position of about 2½ million, offset by about an equal dollar volume of short sales. In our calculations these did not involve any net risk of consequence and so needed only a nominal part of our capital. We had in addition as much as 4½ million in true long positions, or investments of various types, against which we owed some 2 million. As margins were then figured, we calculated ours at about 125 percent; this was six times the brokers' minimum requirement and about three times what was generally considered a conservative margin. We were also convinced that all our long securities were intrin­sically worth their market price. Although many of our issues were but little known to active Wall Street hands, similar ones had previously shown a praiseworthy tendency to come to life at a decent interval after we bought them and to give us the chance to sell them out at a nice profit, replacing them by other bargain issues which we were constantly digging up. In a typical hedge operation we would purchase a convert­ible preferred stock and sell the related common stock at just about the equivalent price. In weak markets the common would decline a good deal more than the preferred, and we could undo the operation at a good profit, despite the fourfold commissions that made our otherwise sluggish account a plea­sure to our brokers. Originally, we had completed such opera­tions by selling out the preferred when we bought back the common. But having found that we would often need to rein­state the position later, thus having to buy the preferred again at a higher price, we adopted a policy of only partially undoing the operations. We would buy the common, but hold on to the preferred, as an appreciably sound investment, until we could again sell the common at an equivalent price against it. In addition, we went in for partial hedges: we would sell only half the common shares called for by our preferred holdings, hop­ing to get a better price for the remainder when and if the price advanced further. Our idea was to make money which­ever way the price of the common went. If down, we would cover our half-short position on good terms; if up, we would benefit from the increased value of the half-interest we hadn't sold. In the tremendous declines after September 1929, we cov­ered a large number of our short positions, making a nice profit. But in most cases we did not sell out the preferreds (or convertible bonds) since their prices seemed too low. We closed the year with a loss of exactly 20 percent compared to a much larger loss for the DJIA. Many of our participants had their own margin accounts whose losses had been much higher because of the pyramiding effect of the borrowed money. Prac­tically everyone was pleased with the account's result for the year; in fact, I heard myself referred to more than once as a "financial genius" for not having lost more. The year 1929 ended in a period of some price recovery and of relative calm; most of us believed that the worst was over. There was some delay in finishing the new Beresford Apartments, so we could not move into our regal duplex until October 1929, just when the holocaust in Wall Street was at its height. I was never really happy in that palace. I regretted the $11,000 rent and the ten-year contract as soon as they became realities. But, in addition, the whole place seemed too large. There were endless decisions to make about the decorations and furnishings, and these in turn put me in a dilemma. On the one hand, I have never had a real interest in such matters ­indeed, in any sort of material possessions-so it was an annoying chore even to shop for furnishings. On the other hand, if I left all the decisions to Hazel, that would confirm more completely than ever her conviction that she was the boss of the family by right of superior knowledge on every subject. (I note, as I type this, an unused little ashtray in my room in Alassio, bearing the inscription: "II padrone sono io; chi comanda e mia moglie.") How frequent it is nowadays for the wife to command. I don't remember now how I resolved the dilemma. I do recall that we spent a not so small fortune on the furnishings. We started off with a troupe of servants, including a com­bined butler and personal valet for me. It was about that time that I visited the new quarters of our friends Dave and Lisette Sarnoff on Fifth Avenue and found that the man who had risen from Russian immigrant to head of the huge RCA company had a room with a built-in barber chair where a barber would shave him every day. It was one of my valet's duties to give me a daily massage, which I soon came to regard as a nuisance and a waste of time. I insisted that he be let go. That was the first and last time that I had a full-time manservant. On several occasions, Chateaubriand writes in his memoirs about his simple tastes, formed in part by his exile in England in poverty and hunger. When he returned to England in a spe­cial warship as French ambassador to St. James, he took with him his personal chef. It is ironical that to nine Americans out of ten "Chateaubriand" means only the most expensive steak on the menu; in that sense it was his chef, inventor of the lux­urious dish, who made the great writer's name a household word. (So much for Chateaubriand's simple tastes!) Our Beresford apartment had a large terrace on the eigh­teenth floor, where a setback began, with a view both east, to Central Park, and south, to downtown. The three children played there with large toys and a pet rabbit. Our neighbors were Nathan Strauss, Jr., and family; Strauss was son of the philanthropist who had sold milk at a penny a glass to the city's poor, and nephew of Oscar Strauss, who had been our first Jew­ish ambassador (to Turkey), and whom I had heard speak as Bull Moose candidate for governor of New York in 1912. To our chagrin we discovered one day, soon after they moved in, that the Strausses had erected a cast-iron wall between our terraces, which shut off our view to the south and was very unattractive as well. The Strauss wall became a cause celebre for a while. We took it as a personal insult and an encroachment on our inviolable privileges. (I laugh now to think about the things that were important to me then.) We retained a lawyer, Mr. E. F. Greenman, of the eminent firm of C.N. Lehman & Greenman, to represent us, and heavy negoti­ations were carried on. Mr. Strauss claimed that we were keeping guinea pigs on our terrace, and he didn't want them to invade his domain. We retorted that the guinea pigs consisted of one small rabbit; he insisted on his right to privacy; and so on. Finally, a compromise of the great dispute was reached. The cast-iron wall was replaced by plants. Years later I found myself sitting at the same table, at a charitable dinner, with the entire Strauss family. We recalled our "Berlin Wall" episode not only without rancor but even with a certain nostalgia. Then Mrs. Strauss was kind enough to remark: "We used to hear a lot about your daughter Mar­jorie, when our Nathan III was in her class at Lincoln School. He told us that she got .A’s in every subject, and he was too bashful to ask her to the dances." For the winter months of 1930 Hazel engaged an apartment in St. Petersburg, Florida, where she would stay with the chil­dren, and where I would come for the longer holidays. Driving through that sunshine city for the first time I saw what I believed to be a large number of people with crutches, all gath­ered in a park. It turned out that these were the shuffle-board addicts. My January stay in Florida was marked by an inci­dent which made little impression on me at the time, but which I was to recall often. Hazel had met a man named John Dix, who was ninety-three years old. His father had founded the John Dix Uniform Company of Long Branch, New Jersey, and I had often passed their large factory on the way to Deal. I visited this Mr. Dix at his home in St. Petersburg and found him surprisingly alert for one so close to the century mark. He asked me all about my business, how many clients I had, how much money lowed to banks and brokers, and innumerable other questions. I answered them politely but with smug self-confidence. Sud­denly John Dix said, with the greatest earnestness: "Mr. Gra­ham, I want you to do something of the greatest importance to yourself. Get on the train to New York tomorrow; go to your office, sell out your securities; payoff your debts, and return their capital to your partners. I wouldn't be able to sleep one moment at night if I were in your position in these times, and you shouldn't be able to sleep either. I'm much older than you, with lots more experience, and you'd better take my advice." I thanked the old man, a bit condescendingly no doubt, and said I would think over his suggestion. Then I hastened to put it out of my mind. Dix was not far from his dotage, he couldn't possibly understand my system of operations, his ideas were preposterous. As it happened he was 100 percent right and I 100 percent wrong. I have often wondered what my life would have been like if I had followed his advice. That it would have spared me much worry and regret I am sure; but whether my character and later career would have formed as they did after my ordeal by fire is another question. The stock market in early 1930 had a nice recovery from the previous year's collapse. By April, the DJIA had reached 279, marking a gain of some 41 percent from the low point of 198 on November 13, 1929. But soon the entire economic picture clouded over because of the Credit Anstalt failure, and a sec­ond major decline set in which was to continue, with relatively short interruptions, until the DJIA reached the abysmally low level of 42 in June 1932. Despite its encouraging beginning, the year 1930 was to prove by far the worst in the thirty-three-year history of my fund management. We were handicapped by the fact that we had already had to cover all our short positions. Owing a sub­stantial sum increased the impact of market declines and put us at the mercy of our creditors. For about three years our great aim was to cut our debt service without sacrificing too much of the values we were sure were inherent in our portfo­lio, despite the bad earnings picture that nearly every enter­prise was showing. Our loss for 1930 was a staggering 50½ percent; that for 1931 was 16 percent; but that for 1932 was only 3 percent - a com­parative triumph. The cumulative losses for 1929 through 1932-before the tide turned-were thus 70 percent of our proud 2½ million capital of January 1929. But we had stub­bornly continued to make quarterly distributions of 1¼ per­cent - charged to Jerry and my capital-and these cut the amount remaining at the end of 1932 to only 22 percent of the original figure. A number of the participants withdrew all or part of their capital. One of these was Bob Marony, who explained most apologetically that he had to have his funds to meet obligations elsewhere. (Fred Greenman told me then that Bob-the imperturbable, fighting Irishman-had burst into tears after disclosing the near-total loss of his fortune of far more than a million dollars.) We gave Marony his pro-rata share of the issues in our portfolio, against assumption of what was then a quite small debt. I think only one person made a new investment in our fund during those difficult years. That was Elias Reiss, Jerry New­man's father-in-law, who put in $50,000 at what turned out to be practically the low point of our fortunes. That meant that, with his characteristic shrewdness, he was to reap a very high return for his show of confidence in us. I have always been grateful to Reiss for a very helpful gesture. Having heard of our preoccupation with our debit balances, and the possible selling that might grow out of them, he additionally offered to put some of his large supply of U.S. government bonds at our disposal, to fortify our position if required. As it happened, we never had to take advantage of his generous offer. We worked hard in those years to retrieve what values we could and managed to make various beneficial arrangements affecting our holdings. In one case we actually brought a suit against some brokerage firms to recover losses on bonds of a zinc mine. The prospectus had indicated very substantial earnings in the past, but it had failed to state that they had been made by extracting all the good ore, so that what was left was bound to be relatively unprofitable. Our lawyers told us we had a meritorious-though unusual-case. Alfred Cook said the only way we could possibly lose before a jury would be if the other side got the almost invariably successful Max Steuer to defend them. What to do? Fred Greenman suggested that we retain Max Steuer ourselves as a consultant; in that way our opponents couldn't get him. We sent the redoubtable Steuer a check for his fee, $5,000, together with our summary of the facts. He said our case was a good one and well briefed, and pocketed the money. The upshot was that the defendants settled by buying back our bonds at two-thirds our cost - ­quite a substantial recovery for us. One of our substantial holdings was the 8 percent cumula­tive preferred stock of Universal Pictures. This was a small issue which had been earning its dividend many times over before the Depression, but soon fell on evil days and passed the dividend. The price declined to 30 cents on the dollar, and this was a real blow to us. The president and founder, Max Laemmle, was continuing to pay himself a salary of three thousand a week plus a thousand a week to Carl Laemmle. These salaries exceeded the entire dividend owed on the pre­ferred stock, and we felt they were excessive under the cir­cumstances. I made an appointment to see Mr. Laemmle. After a wait outside his office I heard a cordial voice shouting "Hi, Graham, come in!" As I entered, a bit mystified, I saw a little man at his desk with a crestfallen face. "Oh," said he dis­gustedly, "I thought you were Graham McNamee" (Univer­sal's celebrated news commentator). I wasn't able to persuade Laemmle to cut his salary, but we eventually unloaded our stock at a fairly respectable price. Clearly, my family needed to cut down on its tremendous living expenses, especially since under the compensation contract the account paid me no salary but only a percentage of earnings for running the business. The chief problem was to get rid of that old man-of-the-mountain lease at the Beresford. By a stroke of luck we were able to sublet the apartment for most of a year (at nearly the rent we paid for it unfurnished) to Mrs. Marcus of Neiman-Marcus, the Dallas department store. Later we wiggled out of the balance of the lease by paying some indemnity, and we took another, much cheaper, but still quite impressive, place in the El Dorado on 91st Street and Central Park West. The El Dorado had been constructed by our friend Charles Goodman, father of Bob and grandfather of Andrew. Charles was a self-made man, an engineer turned successful builder of subways. Like many similar ventures, his luxurious and enor­mous apartment house was finished just before the Crash. Ap­parently Goodman was never able to get the permanent financing needed to payoff the construction loans, and the building was taken away from him-with a loss of more than a million dollars. I don't know how much he had left, but it was enough to continue living in a large penthouse in what was once his prideful project, to have a lively summer place on Tupper Lake-where I learned to ride an aquaboard behind his Cris-Craft (was it cold when we fell off into the lake!)-and in general to live in ample luxury with his large family. But the loss of his El Dorado had turned him into a revolutionary. The only subject he would talk about to all and sundry was the iniquities of "the system" -which a pronounced lisp made him call "the thithtem." According to him, American capitalism was doomed and would have to be replaced by another "thithtem" in which the banks couldn't take over a beautiful building from a man who had put a large fortune and his heart's blood into erecting it. Everyone has read about the ruined speculators said to have jumped out of brokers' windows in droves during the 1929 market panic. Those stories were greatly exaggerated, of course, as are all that appeal to the public's macabre sense or Galgen-humor ["gallows-humor"]. But it is true that many people did desperate things in those awful days, often because they considered themselves ruined, even though they weren't. An example was the uncle of Jenny, my first mistress; he had made a fortune in shoes and then gone into real estate. But worried over losses of various kinds, he locked himself into his garage with a bottle of whiskey and the car engine running, and thus put an end to his troubles. But the fact was that he was quite solvent and left his family in a comfortable position. Indeed, through their investment in our funds their wealth later turned into millions. I can sympathize with the desperation of my old friend, and almost with his tragic end, because to some degree I went through comparable dismay and apprehension for more than three years. It is true that I wasn't ruined and that at the low­est point I still had means which would have seemed quite large to me only ten years before. But wealth and poverty are relative terms-a poor man in New York would be a rich man in Calcutta, and practically everyone who has lost four-fifths of his wealth considers he has suffered a disaster no matter how much he has left. The chief burden on my mind was not so much the actual shrinkage of my fortune as the lengthy attri­tion, the repeated disappointments after the tide had seemed to turn, the ultimate uncertainty about whether the Depres­sion and the losses would ever come to an end. Add to this the realization that I was responsible for the fortunes of many rel­atives and friends, that they were as apprehensive and dis­traught as I myself, and one may understand better the feel­ing of defeat and near-despair that almost overmastered me towards the end. I expressed those feelings in a little poem I composed in the bleak winter of early 1932: “Silent and soft as the gossamer snow: Mantles of Death drift over the lorn; Cold is his touch, but warmer than woe: Black is his night, but brighter than morn. Where shall he sleep whose soul knows no rest: Poor hunted stag in wild woods of care? Earth has a pillow for his harassed head: Dust has a drug to ease his despair.” The Crash reaffirmed parsimonious viewpoints and habits that had been ingrained in me by the tight financial situation of my early youth but which I had overcome almost com­pletely in the years of success. I blamed myself not so much for my failure to protect myself against the disaster I had been predicting as for having slipped into an extravagant way of life which I hadn't the temperament or capacity to enjoy. I quickly convinced myself that the true key to material happiness lay in a modest standard of living which could be achieved with lit­tle difficulty under almost all economic conditions. I applied this new principle in two ways-one logical and creditable enough, the other quite small-minded. It became my firm resolve never again to be maneuvered into ostentation, unnecessary luxury, or expenditures that I could not easily afford. The Beresford lease was a bitter but salutary lesson, and in the ensuing thirty-five years, I have avoided any and all real estate white elephants. But on another plane, that of purely personal spending, I must own that I carried economy much too far, and began once more to worry about dimes and quarters when tens of thousands of dollars were actually at stake. I would take the subway in­stead of a taxi, alleging to myself that this was quicker-and I was always in a hurry-but knowing well that I wanted to save the dollar or so involved. Similarly, I got in the habit of ordering the less expensive entrees on the menu, and even-I hate to confess it-of taking my mother to Chinese restau­rants for our weekly dinner. In the days of my affluence I had provided Mother with a car and chauffeur (although I have never had a chauffeur for myself); now I felt that Mother, understanding my need for strict economy, could do without. Fortunately, I almost always made a sharp distinction be­tween spending habits that involved others and those which affected me alone. I am reasonably sure that I was never con­sidered miserly, though I might have been if the world knew how I was treating myself. During the trying period of 1930 to 1932, I kept busy with many activities. I wrote three articles for Forbes Magazine, pointing out the extraordinary discrepancies between the low prices of important common stocks and the much larger cur­rent assets (even cash assets) that were behind each share. The title of one of those articles was "Is American Business Worth More Dead Than Alive?" a question that was to take an important place in financial phraseology. (Actually the phe­nomenon continued to affect the stock of many companies long after the end of the Great Depression.) I participated in many economic discussions with groups of various sorts. I continued to give my course at Columbia, though to much smaller classes, and in 1932 I set definitely to work on the textbook that I had first projected in the lush times of 1927. I asked Dave Dodd to collaborate with me on the book. We agreed that I would be the senior author and write the entire text in my style. He would aid with suggestions and criticisms, would check the numerous facts and references, and work up the tables. We prepared a table of contents and a sample first chapter, and submitted them to McGraw-Hill & Company through Hugh Kelly, a bright young employee who had been one of our students. (He later became McGraw's vice-presi­dent.) McGraw submitted our material to their reader, a Har­vard professor of finance. As an exception to the rule, we were shown his report, which was very favorable-his only doubt being whether we would have the stamina to carry the ambi­tious work to a conclusion. McGraw-Hill was so impressed with his recommendation that they offered us a straight 15 percent royalty, instead of the sliding scale that usually started at 10 percent. Dodd and I agreed to divide the royalties three-fifths to me and two-fifths to him. The contract was signed at the end of 1932, but it was to take a year and a half before the first edi­tion of Security Analysis made its appearance. Before the Crash ended, in December 1932, I had begun two entirely new activities which were to play an important part in my subsequent life. One was as expert witness in valuation cases. The other was my invention of the commodity reserve currency plan, which was to give me a place in many textbooks in economics. I will defer discussion of these until I describe the next period of my life, which began with the inauguration of Franklin D. Roosevelt in March 1933.”