The stock market A place of chaos, emotion, and rapid decisions But it is also a place of strategy, foresight, and wisdom.
Enter Benjamin Graham, the father of value investing, who once said, “
“In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”
But what did Graham mean by this? Let’s decode.
In the short term, the stock market behaves like a ‘voting machine’. Prices move based on popularity and sentiment. News headlines, rumors, or even societal moods can sway these votes.
A breakthrough product launch? Up the stock goes.
A scandal rumor? It might plummet.
These are the ‘votes’ of the emotional, often reactionary public.
Essentially, the market “votes” on the price of a stock based on collective emotions and sentiments.
But Graham believed that over time, this noise would fade away. The market starts behaving like a ‘weighing machine’.
Over time, the stock market reflects the true, intrinsic value of a company. Like a weighing machine that measures the actual weight of an object, in the long run, a company’s stock price will reflect its actual worth.
Assets, earnings, liabilities, and growth potential—the fundamentals that determine a company’s true value—begin to stand out. Regardless of the buzz or popularity, it’s the actual weight that matters in the end.
Graham’s teaching is profound. It’s a lesson about patience. Looking past the immediate, the noisy, and the flashy
Today’s savvy investors live by this principle. They analyze, they weigh, and they wait.
Because they know that while the market’s votes might be fickle, their weight… their weight doesn’t lie.
So, keep Graham’s advice in mind the next time the market’s voting frenzy sways you. Look for the weight, the substance, and the true value.
The essence of Graham’s statement is an emphasis on the importance of differentiating between short-term price movements and long-term value. While the market might react irrationally in the short term due to various factors, in the end, solid fundamentals and true value will prevail. This viewpoint serves as the cornerstone of value investing, which encourages investors to buy stocks with strong fundamentals but low market valuations.
Benjamin Graham: Guiding investors from the superficial to the substantial