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Stock market: Voting Machine or Weighing machine?

May 1, 2016

Lets think about this: Is the stock market a voting machine (random price movements driven by mob mentality) or a weighing machine (prices being decided after careful thought and analysis)? If we were to go by the view of legendary value investor Benjamin Graham, the correct answer is.........it depends :)

 

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

                                                                                                                             - Benjamin Graham

 

Since most people focus on the short-term, the stock markets appear to them like a voting machine - a casino with stock prices fluctuating without any basis. Since they believe stock prices behave randomly, they also act in accordance to their belief - booking small profits as they are made (its all random you see!) and clinging on to their losses (they are just in a spell of bad luck which will soon alter!). How else can one deal with a random, gyrating market? Their default investing philosophy is: Buy and Pray!

 

So, what are they missing? They are actually missing being an investor!

 

Instead of focusing on daily price movements, a real investor actually focuses on the actual value being created in the business that he or she owns shares of. An investor is clear that the market is a weighing machine - in the long-term, the stock price will only track the value being generated in the business as reflected in the earnings and other financial metrics. His default investing philosophy is: Buy, Hold, and be watchful.

 

So, how does the stock market occur to you: Voting machine or weighing machine :)

 

At Inertia, we are committed that our investor clients keep viewing the stock markets for what they really are in the long-term: A weighing machine that will compound their capital over and over again. This will be driven by no random movements but by the virtue of strong business performance of portfolio companies.

 

Does it make any sense to keep checking your weight every nanosecond? Or the stock prices for that matter :)

 

Be with us, discover the ease of long-term investing, and keep the stress out!

 

Team Inertia

 

 

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