"In the short run, the market is a voting machine. In the long run.." – Benjamin Graham

"In the short run, the market is a voting machine. In the long run, it is a weighing machine."

Benjamin Graham

Benjamin Graham was originally from England but immigrated to the United States when he was just one year old. His original name was Benjamin Grossbaum, but during World War I, due to rising anti-Semitic and anti-German sentiments, his family changed their last name to Graham to avoid persecution.

Graham attended Columbia University and later taught at its graduate school, where one of his students was Warren Buffett. In 1926, he founded an investment firm called Graham-Newman. He wrote two very famous books in the securities industry - “Security Analysis”, co-authored with David Dodd, and “The Intelligent Investor”, which he wrote on his own.

Graham is recognized as the "father of value investing" or the "father of security analysis" for systematizing the value investment concept, which compares a company’s intrinsic value to its market price. He earned this title not only from his books but also from educating many students, including Warren Buffett, on investing at Columbia University.

Stock Prices vs. Intrinsic Value

The market, in the short term, tends to evaluate stocks as if it’s a popularity contest, rather than focusing on their true value. But over time, it evaluates stocks more accurately, reflecting their intrinsic value. If we consider the intrinsic value of a stock as its weight, the term "weighing machine" is appropriate.

In other words, even if you correctly assess a stock's intrinsic value and invest with a sufficient margin of safety, you might experience losses in the short term if the stock is unpopular. However, over the long term, the market will accurately evaluate the stock, and the investor will profit - justice prevails, so to speak.

In the same vein, Benjamin Graham also said: "Investment is most intelligent when it is most businesslike." This means that investment activities must ensure the safety of the principal and adequate returns through thorough analysis. Activities that don't meet these requirements are speculative.

We must trust the market’s long-term weighing machine role. So it’s good to ask oneself from time to time whether I am investing, or speculating. If we constantly reflect on this, perhaps we can become wiser investors.

More Quotes from Benjamin Graham

Benjamin Graham has a lot of insightful quotes. Let me share a few:

"Successful investing is about managing risk, not avoiding it." [If you try to avoid risk entirely, you’ll end up only investing in short-term bonds or savings accounts, or missing out on most of a bull market by trying to time it. The key is managing risk, which Graham boiled down to four words: intrinsic value, margin of safety, diversification, and long-term investment.]

"A great company is not a great investment if you pay too much for the stock." [While Nvidia is undoubtedly a leader in AI with a significant competitive edge, investors may be hesitant to invest at current levels due to concerns about potential overvaluation.]

"The investor's chief problem – and even his worst enemy – is likely to be himself." [A reminder we should take to heart. Ultimately, our greatest obstacle is often ourselves.]

"The intelligent investor is a realist who sells to optimists and buys from pessimists." [This is in line with Warren Buffett’s famous quote, "Be fearful when others are greedy and greedy when others are fearful." Buffett's version is more straightforward, but Graham’s is more philosophical.]

"Investment is most intelligent when it is most businesslike." [Warren Buffett often says that buying stocks is like buying a business, not just a stock certificate. This reflects the proper attitude toward stocks that he should have learned from his mentor, Graham.]

"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." [Achieving satisfactory investment results can be as simple as buying a low-cost S&P 500 index fund and holding it long-term - although even that is no easy feat at all. But generating alpha and outperforming the market is extremely difficult. This is why Warren Buffett’s 20% average annual return over 60 years since 1965 is so remarkable.]

Final Words

If you're a serious value investor, I highly recommend reading one of Benjamin Graham's books. While "Security Analysis" is more like a textbook and can be challenging to read, "The Intelligent Investor" is easier to approach. Warren Buffett has praised "The Intelligent Investor" highly, calling it "by far the best book on investing ever written".

I hope you're inspired by one of Benjamin Graham's quotes that I've shared in this post. Thanks for reading. Wish you grow rich slowly and surely!

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