A very astute and important distinction. As Graham understood, some of these low Price to book, Net Net stocks will not recover in price. Some will turn out to be losers. There are ways we can try to minimize that, but you cannot eliminate a bad result from a great decision. I believe James Montier discusses this very subject. I think that must be why Graham suggested selling after two years if you did not make any money on an investment, even though we would rather sell after a 50% gain. Thanks for stopping by.

It is very possible to make an investment that is fully rational, fits your portfolio, has a high expected return, and still loses money due to factors outside of your control.

On the flip side, it is also possible to make money playing Lotto or engaging in other irrational activities.

For instance, during the financial crisis in late 2008, I lost a good bit of money buying distressed financials and corporate bonds. I made a good deal more money investing in emerging markets and micro-caps.

It is easy for me to now rationalize why the money-losing investments were mistakes, and the money-making investments were solid decisions. However, at the time, I made the purchases for the same reason – these assets were looking very very cheap.