In 1998 Economics Professor and Nobel Prize winner Paul Samuelson (1915 - ) noted that, "Many people now believe that if they simply hold stocks long enough they will not, lose money for statistics have shown that since 1926 U.S. equity market has not suffered a loss in any given 15 year."

He called it a fallacy, and conceded that it is truly likely that if you hold stocks over long periods of time that they would tend to produce returns higher than other assets. But to believe that it is a God given statement ... Is simply not correct!

"Risk does not go to zero over long periods," but there are many articles that reflect how risk goes down longer time period. What is seldom introduced is fact that if there is a significant onetime loss, it can be monumentally overwhelming.

In any case Samuelson noted that: "The problem is that when stock prices do turn down (as inevitably happens even in strongest of bull markets!) your optimistic equity exposure can overwhelm your gut level risk tolerance, leading to poor short-term judgments and even outright panic!"

The formula as described by Graham, is as follows:

Value = Current (Normal) Earnings x (8.5 + (2 x Expected Annual Growth Rate)

Where Expected Annual Growth Rate "should be that expected over next seven to ten years."

The value of 8.5 appears to be P/E ratio of a stock that has zero growth. It is not clear from text how Graham arrived at this figure, but it is likely it represents y-intercept of a normal distribution of a series of various P/E values plotted against corresponding growth figures.

Graham's formula takes no account of prevailing interest rates; at time he last updated chapter, around 1971, yield on AAA Corporate Bonds was around 4.4%. We can adjust formula by normalizing it for current bond yields by multiplying by a factor of 4.40/{Current AAA Corp Bond Yield}. Bond yields can be found on Yahoo!