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"The father of value investing, Benjamin Graham, explained this concept by saying that in the short run, the market is like a voting machine--tallying up which

"The father of value investing, Benjamin Graham, explained this concept by saying that in the short run, the market is like a voting machine--tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine--assessing the substance of a company." Boring answer, but in the long-term, great businesses go up, whereas crappy businesses go bankrupt.

f38zf5vdt 5y ago
They used to. In the era of quantitative easing, governments just pump money into any failing major player. edit: I see I rustled some jimmies. Feel free to have a look yourself at "modern capitalism". https://money.cnn.com/news/specials/storysupplement/bankbailout/ https://money.cnn.com/news/specials/storysupplement/bankbail...
- ethbr0 5y ago
  Pumping money into the market in general has the same effect. Especially if chosen inflation measures conveniently exclude capital areas money would accumulate (stocks & property).
  - f38zf5vdt 5y ago
    Yes, agreed.
pinewurst 5y ago
I think this was much more true in the long ago era of regulation, (mostly) autarky, and limited market info/trading barriers. I've looked at "Security Analysis" and it's very much a historical piece - railroads and (practically) buggy whips. Things change relatively faster these days. Yesterday, Kodak was the bluest of chips; today, pretty much a joke. Heck, look at Buffett in the last decade - I'll bet he fully Grahamitized IBM, which didn't make it any less hollow. That sort of analysis, or even certainty (a false premise by definition) just isn't worth the effort for the average ownership span.
- ethbr0 5y ago
  In times of plenty, where money flows and pools drives stock prices. In times of poverty, fundamentals drive stock prices. We've been in a time of plenty for a historically abnormally long period.
  - Apocryphon 5y ago
    And the time of plenty is primarily driven by monetary policy, is it not?
    - JumpCrisscross 5y ago
      > plenty is primarily driven by monetary policy Short-term market cycles are always driven by credit, which is in turn driven by monetary policy.
- kortilla 5y ago
  Kodak is a terrible example. That company had a long decline into irrelevance. Big companies have been doing that forever.
  - pinewurst 5y ago
    It's a good example because it shows the gulf between organizational/innovational rot and impeccable bookkeeping. Kodak's signs of decay were visible at least as long ago as the late 70s vis a vis the Polaroid patent infringement case (and the cheesiness of Kodak's own knockoffs).
- JumpCrisscross 5y ago
  > this was much more true in the long ago era of regulation It's still true. We just haven't had, in close to a generation now, the sort of bear market that permits the enforcers of fundamentals to re-emerge: liquidation and bankruptcy against overvaluation; M&A against undervaluation.
  - 5y ago
sirspacey 5y ago
This is a wildly optimistic way of framing the long-term value of the market. It’s more likely that the crappy companies will live for the long term - if you measure “crappy” by anything resembling consumer/client benefit.
6gvONxR4sf7o 5y ago
Are these the same markets? The stock market between investors and companies could be a voting machine while the “stuff” market between customers and companies could be a weighing machine. Then it would be a difference of which market rather than which timescale, potentially allowing the investor market to prop up companies failing in the stuff market for long periods due to nothing more than investor popularity.
rchaud 5y ago
I remember reading Graham for a finance class in the mid-2000s, and even then it was several decades old. It's a relevant read if you work in securities analysis. If you're an investor however, the takeaways of the book are more philosophical than actionable. Too much has changed in the market since Graham's time. The idea of an Uber-type company using VC billions to cover its losses would have been completely alien to him. As would companies doing an end run around the IPO process with SPACs.

f38zf5vdt 5y ago

They used to. In the era of quantitative easing, governments just pump money into any failing major player. edit: I see I rustled some jimmies. Feel free to have a look yourself at "modern capitalism". https://money.cnn.com/news/specials/storysupplement/bankbailout/ https://money.cnn.com/news/specials/storysupplement/bankbail...

ethbr0 5y ago
Pumping money into the market in general has the same effect. Especially if chosen inflation measures conveniently exclude capital areas money would accumulate (stocks & property).
- f38zf5vdt 5y ago
  Yes, agreed.

pinewurst 5y ago

I think this was much more true in the long ago era of regulation, (mostly) autarky, and limited market info/trading barriers. I've looked at "Security Analysis" and it's very much a historical piece - railroads and (practically) buggy whips. Things change relatively faster these days. Yesterday, Kodak was the bluest of chips; today, pretty much a joke. Heck, look at Buffett in the last decade - I'll bet he fully Grahamitized IBM, which didn't make it any less hollow. That sort of analysis, or even certainty (a false premise by definition) just isn't worth the effort for the average ownership span.

ethbr0 5y ago
In times of plenty, where money flows and pools drives stock prices. In times of poverty, fundamentals drive stock prices. We've been in a time of plenty for a historically abnormally long period.
- Apocryphon 5y ago
  And the time of plenty is primarily driven by monetary policy, is it not?
  - JumpCrisscross 5y ago
    > plenty is primarily driven by monetary policy Short-term market cycles are always driven by credit, which is in turn driven by monetary policy.
kortilla 5y ago
Kodak is a terrible example. That company had a long decline into irrelevance. Big companies have been doing that forever.
- pinewurst 5y ago
  It's a good example because it shows the gulf between organizational/innovational rot and impeccable bookkeeping. Kodak's signs of decay were visible at least as long ago as the late 70s vis a vis the Polaroid patent infringement case (and the cheesiness of Kodak's own knockoffs).
JumpCrisscross 5y ago
> this was much more true in the long ago era of regulation It's still true. We just haven't had, in close to a generation now, the sort of bear market that permits the enforcers of fundamentals to re-emerge: liquidation and bankruptcy against overvaluation; M&A against undervaluation.
- 5y ago

sirspacey 5y ago

This is a wildly optimistic way of framing the long-term value of the market. It’s more likely that the crappy companies will live for the long term - if you measure “crappy” by anything resembling consumer/client benefit.

6gvONxR4sf7o 5y ago

Are these the same markets? The stock market between investors and companies could be a voting machine while the “stuff” market between customers and companies could be a weighing machine. Then it would be a difference of which market rather than which timescale, potentially allowing the investor market to prop up companies failing in the stuff market for long periods due to nothing more than investor popularity.

rchaud 5y ago

I remember reading Graham for a finance class in the mid-2000s, and even then it was several decades old. It's a relevant read if you work in securities analysis. If you're an investor however, the takeaways of the book are more philosophical than actionable. Too much has changed in the market since Graham's time. The idea of an Uber-type company using VC billions to cover its losses would have been completely alien to him. As would companies doing an end run around the IPO process with SPACs.