When it comes to equities, there is no hiding from the voting machine
By Richard Stubbs
Famous value investor and mentor to Warren Buffet, Benjamin Graham, stated that in the short run, the stock market is a voting machine but in the long run, it is a weighing machine. What he meant by this was in the short run the stock market can experience significant fluctuations due to changes in investor sentiment, news events, or other external factors that have little to do with the actual value of the companies being traded. These fluctuations can cause companies to be overvalued or undervalued based on sentiment, rather than actual fundamentals. However, over the long run, the market tends to act more like a weighing machine, with the price of companies reflecting the true underlying value. This is because, over time, the true value of a company's earnings and assets will become reflected in its stock price.
Unfortunately, there is no hiding from the voting machine in the short run. Even Buffett has fallen foul of votes several times over his career. An interesting case is the period from June 1998 to March 2000. Over that 21-month period, the S&P500 was up 27% but Berkshire Hathaway was down 49%!
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