For Benjamin Graham, the greatest risk facing an investor is not the market, but short-term, emotional reactions to stocks. Nancy Tengler discusses the importance of emotional discipline.

Successful investors are students of history. Just as philosopher George Satayana famously declared: “Those who do not remember the past are condemned to repeat it,” so it is also true: Investors who do not study the historical performance of stocks are doomed to make costly mistakes.

No one understood that point as clearly as Benjamin Graham, author of “The Intelligent Investor.” And no one has articulated it so well. According to Graham, intelligent investing requires an informed (though not necessarily exhaustive) understanding of the companies we are buying. He does not argue that individuals must be endowed with superior intelligence; rather, they must possess the discipline to exercise “firmness in the application of relatively simple principles of sound procedure.”

For Graham, the greatest risk facing the individual investor is not the market but our short-term reaction (often emotional) to stocks. We sometimes find ourselves “beset with confusions and temptation… frequently unconscious toward speculation, toward making money quickly and excitedly, toward participating in the moods … of the crowd.” In other words, Graham warns us to be wary of our natural proclivity to desire instant success. Gambling, lotteries and speculative trading appeal to the eternal hope etched on our imagination; the hope we just might win, we just might get rich quick.

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