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by sceew 1968 days ago
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

- Ben Graham

This mostly holds true depending on you define 'long run.'

2 comments

John Maynard Keynes quips that "in the long run we are all dead."
he also said, "the market can remain irrational longer than you can remain solvent."
Apparently, that nice bon mot is from A. Gary Shilling from the 1980s.

https://quoteinvestigator.com/2011/08/09/remain-solvent/

Since we're doing JMK quotes, he also said "Capitalism is the extraordinary belief that he nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all."
And that’s why we follow his ideas. Regulated capitalism is the best economic system (so far.)
It seems "the long run" in the context of this quote is getting longer over the past 20 years (or more), with high multiples and companies that won't return the capital invested in them for many, many years, even in optimistic scenarios.

Does that mean the weighing part is becoming less important, and the voting part more so?

I'd say that it's always been about the long run; however, with (real) rates around, say, 5%, as in the 90s, what matters for the present value is mostly within the next 20 years. With rates about 1%, what happens after the next 50 years still determines more than half of your PV.
Do investors really think they can predict the income of a company in the 2070s with ANY degree of accuracy? None of the top five companies by market cap even existed 50 years ago.
That's my point - with high ("normal") interest rates, your horizon becomes shorter, what happens in 30+ years doesn't really matter, and the fundamental value of a share should become visible more quickly, so the uncertainty now is lower. With rates near zero, what happens in 50 years still matters, so who knows what the share should be worth today?