Posted November 9, 2025 by

Bull markets make you feel smarter than you really are.

Bear markets make you feel dumber than you really are.

It’s almost impossible to avoid feeling like a know-it-all when things are going up and a know-nothing when things are going down.

That’s human nature.

Benjamin Graham started his investment partnership in the Roaring 20s with $400,000 of money from clients and his own capital. In just three years he turned $400k into $2.5 million. Much of it was Graham’s own money, derived from a combination of savings and the management fees he earned.

This magical run of performance just so happened to coincide with a melt-up in the stock market.

Alas, like most people, Graham didn’t see the Great Depression coming. He tried to pick the bottom on numerous occasions with disastrous results.

Michael wrote about what happened in Big Mistakes:

In 1930, thinking the worst was over, Graham went all in and then some. He used margin to leverage what he thought would be terrific returns. But the worst was not over, and when the Dow collapsed, Graham had his worst year ever, losing 50%. “He personally was wiped out in the crash. Having ducked the 1929 cataclysm, he was enticed back into the market before the final bottom.”

By 1932, the $2.5 million had dwindled to just $375k.

In his memoir Graham wrote about how his early successes impacted his mentality before the calamity:

At thirty-one I was convinced that I knew it all–or at least I knew all I needed to know about making money in stocks and bonds–that I had Wall Street by the tail, that my future was as unlimited as my ambitions, that I was destined to enjoy great wealth and all the material pleasures that wealth could buy. I thought of owning a large yacht, a villa at Newport, racehorses. I was too young to realize that I had caught a bad case of hubris.

The good news is Graham was able to turn it around. He didn’t take a paycheck until all of his investors were made whole. Despite his setbacks in the Great Depression, his long-term track record was impressive while his impact on investor education still lives on.

One of my all-time favorite investment books is What I Learned Losing a Million Dollars by Brendan Moynihan.

Moynihan tells the story of Jim Paul, a country boy from Kentucky who went from dirt-poor to millionaire trader on the Chicago Mercantile Exchange to broke in a matter of years.

This is how Moynihan describes the story in the introduction:

One of the premises of this book is that the rise sets up the fall; the winning sets up the losing. You can’t really be set up for disaster without having it preceded by success.

It’s extremely difficult to understand this dynamic as a young person who has experienced some level of success in the markets. Moynihan explains:

If you start from scratch and have a run of successes, you are setting yourself up for the coming failure because the successes lead to a variety of psychological distortions. This is particularly true if you have unknowingly broken the rules of the game and won anyway. Once that happens to you, you think that you are somehow special and exempt from following the rules.

There are a lot of people who have made a lot of money in this bull market.

So many investors have made life-altering amounts of money. This is a wonderful thing.

But it’s important to avoid letting success in the markets go to your head. This cycle will not last forever. Making money won’t always be this easy.

The market will make you feel dumb again at some point…even when it’s not true.

Further Reading:
The Curse of the Young Millionaire