Discrepancy in table 2.1 Page 49 in the book The Intelligent Investor by Benjamin Graham

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vassy
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Discrepancy in table 2.1 Page 49 in the book The Intelligent Investor by Benjamin Graham

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Table 2.1 on Page 49, of the book - The Intelligent Investor, shows inflation at 5 years intervals. I am finding a bit hard to understand this table. For e.g. calculation of percentage rise in wholesale prices in 1960 seems to be wrong. Actual rise (100.7 - 97.2)/97.2 = 3.6% but the table says its 9.2%. I found such discrepancies in other values of the table as well. Also, I am not able to grasp the footnotes at the table (specifically point a and b). Can someone please explain? Thanks!
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Peculiar_Investor
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Re: Discrepancy in table 2.1 Page 49 in the book The Intelligent Investor by Benjamin Graham

Post by Peculiar_Investor »

Welcome to the FWF community.

If you look at page 64 of The Intelligent Investor - HarperCollins you can see Table 2-1 that the OP is referencing.

On my copy of The Intelligent Investor, Fourth Revised Edition, the table appears on page 18. I'd never noticed the error, not can I explain it. But remember, it comes from a time before spreadsheets.

I would put it down to the disadvantage of pencil and paper for performing these calculations. There are spreadsheets now 8-) If you plug Graham's data into Excel and let it calculate the Percent change you would get:

Code: Select all

                                                                 Percent Change from Previous Level
            Price Level(a)          S&P 500-Stock Index(b)  Wholesale   Consumer    Stock       Stock
Year        Wholesale   Consumer    Earnings    Price       Prices      Prices      Earnings    Prices
1915         38.0        35.4                   8.31
1920         84.5        69.8                   7.98        122.4%       97.2%                   -4.0%
1925         56.6        61.1       1.24        11.15       -33.0%      -12.5%                   39.7%
1930         47.3        58.2       0.97        21.63       -16.4%       -4.7%      -21.8%       94.0%
1935         43.8        47.8       0.76        15.47        -7.4%      -17.9%      -21.6%      -28.5%
1940         43.0        48.8       1.05        11.02        -1.8%        2.1%       38.2%      -28.8%
1946(c)      66.1        68.0       1.06        17.08        53.7%       39.3%        1.0%       55.0%
1950         86.8        83.8       2.84        18.4         31.3%       23.2%      167.9%        7.7%
1955         97.2        93.3       3.62        40.49        12.0%       11.3%       27.5%      120.1%
1960        100.7       103.1       3.27        55.85         3.6%       10.5%       -9.7%       37.9%
1965        102.5       109.9       5.19        88.17         1.8%        6.6%       58.7%       57.9%
1970        117.5       134.0       5.36        92.15        14.6%       21.9%        3.3%        4.5%
I wonder if any of the footnotes impact the results? They are:
  1. Annual averages. For price level 1957 = 100 in table; but using new base, 1967 = 100, the average for 1970 is 116.3 for consumers’ prices and 110.4 for wholesale prices for the stock index.
  2. 1941–1943 average = 10.
  3. 1946 used, to avoid price controls.
To understand the footnotes you might want to read Guide to Available CPI Data
Bureau of Labor Statistics wrote:Reference Base

The CPI is a tool that simplifies the measurement of changes in prices over time. By selecting an appropriate reference base and setting the average index level for that time period equal to 100, it is possible to compare this month’s (or last year’s) price index level with the reference base period or to any other time period. The current standard reference base period is 1982-84=100. That is, all price changes are measured from a base (100) that represents the average index level of the 36-month period encompassing 1982, 1983, and 1984.

Prior to the release of the CPI for January 1988, the standard reference base was 1967=100. As a service to our customers with existing escalation provisions, BLS continues to publish CPI all items indexes for the U.S. city average and all local areas using the old base. Note that, although comparisons cannot be made between indexes with different reference bases, the conversion to a new reference base does not affect the measurement of percent changes in a given index series from one time period to another, except for rounding differences.

In addition, BLS publishes several index series with a reference base more recent than January 1982. These indexes either could not be rebased because historical price data were not available for the entire 1982-84 reference base period or they represent items (such as mid-grade gasoline) that only recently were introduced into the CPI.
At the end of the day, although there may be flaws/errors in data that Graham presents, I don't think they are significant enough to invalidate the conclusions that he draws from the table.
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vassy
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Re: Discrepancy in table 2.1 Page 49 in the book The Intelligent Investor by Benjamin Graham

Post by vassy »

Thanks for the detailed reply @Peculiar_Investor.
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