Graham, distilled

The largest losses come from buying inferior securities when times look best.

“My experience teaches me that by far the largest losses have been sustained by investors through buying securities of inferior quality under favorable general conditions.”

Benjamin Graham · The Intelligent Investor (1949), ch. 20, “Margin of Safety”

The trap is the timing. Junk does not get bought in a panic, when fear makes everyone careful. It gets bought when conditions look most favorable, because good earnings get mistaken for earning power and prosperity gets mistaken for safety. The cycle turns, the quality you skipped is the protection you no longer have, and the loss is permanent, not temporary. The cure is to demand quality and a margin of safety most when it feels least necessary.