Trend Durability
Wall Street's biggest blind spot is its obsession with the past. As Benjamin Graham notes, while investors claim to focus on future developments, they invariably base their predictions on historical trends. When markets rise, optimism soars; when they fall, pessimism prevails. The same pattern applies to individual companies - those with growth histories are expected to keep growing, while declining ones are written off.
Every established trend had momentum so it’s likely to continue for at least a while longer, rather than reversing at the moment you’ve observed the trend. Yet Graham warns against this mechanical extrapolation: "While every trend has momentum, this doesn't mean it will continue long enough to profit those who jump aboard."
The past may rhyme, but it doesn't dictate the future.