SharperDingaan

Almost never mentioned is that Graham (of Graham & Dodds) almost went bankrupt while applying the methodology. Arguably, untill the recovery actually began, he survived only because he had more money than he had places to put it. Downside volatility. Graham made his money, primarily because he was overweight the right stocks at the start of the recovery, & then held them pretty much through to the top of the cycle. The methodology got him there, but its not universal - it works only in up-cycles. Were today's hedging instruments available at the time, he might well have actually made more in the down-cycles. Almost all value investors have been experiencing extreme adverse downside volatility, & in most cases they made thier money in the up-cycles - classic Graham. A very few have modernized the methodology, largely by taking the opposit side of market hedges (ie: FFH-CDS's, WEB-S&P option puts). We may well eventually conclude that WEB & coy actually had too much capital, & that it effectively drove them into the market too early. They did not risk bankruptcy because they were able to efficiently hedge, something that Graham wasn't able to do. Its not always a bargain SD

Another option is direct investment in some of the stuff FFH owns. You still have some FFH weighting (via FFH's investment in the coy you've chosen) but end up with more chance of hitting a bigger 'X'-bagger. Different kinds of risk, generally higher volatility, & also the potential for discontinuity (FFH is not obliged to bail out the coy if/when it screws up).

Keep in mind that the law of large numbers has been systematically making the ratio less sensitive, and that the GNPs measurement has changed over time. The 75% cutoff may need to be lower. Over the next 6 months GNP is projected to decline. For the trend to continue, the decline in stock price would actually need to accelerate. The graph suggests a buy point at 50%, or less (35% over WWII). To get there the 'average' stock price needs to fall at least 62% [(50-130)/130] from the average 'peak'. Normal curve tails suggests there were will be some big winners & losers, & a way to quantify how many. Bear Sterns, Lehmans, etc. were losers, the equivalent offseting winners are still something of a mystery. A laymans look would suggest that except for a very few stocks, its still too early to buy. SD