On the eve of the 1929 Crash, Graham was managing what we, in the 21st century, would recognize as a hedge fund. He was long $2.5 million of stocks and bonds against which he was short the same amount. In addition, however, he had $4.5 million in outright long positions, and he had incurred substantial margin debt to own it. In his posthumously published reminiscences, Benjamin Graham: The Memoirs of the Dean of Wall Street (1996), the father of value investing described his state of mind this way: "We were convinced that all of our long positions were intrinsically worth their market price."

So Graham, by heavily mortgaging himself, unwittingly transformed a conservative investment strategy into a risky one. Top to bottom, 1929--32, his fund was down by 70%, a better showing than the 87% drop in the Dow but a calamity still. The once and future investment genius sorely needed income. Where could he find it?

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