Berkshire earned $4.0 billion in 2018 utilizing generally accepted accounting principles (commonly called “GAAP”). The components of that figure are $24.8 billion in operating earnings, a $3.0 billion non-cash loss from…
The governor, seeming to like my company, had me frequently to his house, and his setting me up was always mention'd as a fixed thing. I was to take with me letters recommendatory to a number of his friends, besides the…
Berkshire earned $4.0 billion in 2018 utilizing generally accepted accounting principles (commonly called “GAAP”). The components of that figure are $24.8 billion in operating earnings, a $3.0 billion non-cash loss from…
The governor, seeming to like my company, had me frequently to his house, and his setting me up was always mention'd as a fixed thing. I was to take with me letters recommendatory to a number of his friends, besides the…
Adam Smith:The Wealth of Nations, Book I, Chapter VIII, Paragraph 233
Adam Smith《The Wealth of Nations》· Book I, Chapter VIII · Investing
In a year of sudden and extraordinary plenty, there are funds in the hands of many of the employers of industry, sufficient to maintain and employ a greater number of industrious people than had been employed the year before; and this extraordinary number cannot always be had. Those masters, therefore, who want more workmen, bid against one another, in order to get them, which sometimes raises both the real and the money price of their labour.
The governor, seeming to like my company, had me frequently to his house, and his setting me up was always mention'd as a fixed thing. I was to take with me letters recommendatory to a number of his friends, besides the…
Berkshire earned $4.0 billion in 2018 utilizing generally accepted accounting principles (commonly called “GAAP”). The components of that figure are $24.8 billion in operating earnings, a $3.0 billion non-cash loss from…
21:00 Figures · Investing · Modern investor letters
Benjamin Graham:Voting Machine and Weighing Machine
Benjamin Graham《Security Analysis》· Chapter XXXIX, “Price-Earnings Ratios for Common Stocks. Adjustments for Changes in Capitalization” · Investing · Cognition · Human nature
The stock market is a voting machine rather than a weighing machine. It responds to factual data not directly but only as they affect the decisions of buyers and sellers.
Source:
https://archive.org/details/dli.ernet.7983 Chapter XXXIX, “Price-Earnings Ratios for Common Stocks,” paragraph beginning “But the stock market itself has no time...”
Reading
Prices reflect human reactions, not precise mechanical valuations.
Context
Graham's actual wording in Security Analysis differs from the popular paraphrase “in the short run the market is a voting machine, but in the long run it is a weighing machine.” That compressed version is a later summary; Graham wrote that prices are the result of human reactions and that the market responds to facts only through buyers' and sellers' decisions. The distinction matters because it warns investors against treating market prices as precise measurements of value.
Today's question
When did you last change your judgment because of the market's vote—and what would you do if you looked only at the business's weight?
The governor, seeming to like my company, had me frequently to his house, and his setting me up was always mention'd as a fixed thing. I was to take with me letters recommendatory to a number of his friends, besides the…