DID Graham say "weighing machine in the long run?"

[nisiprius]

Benjamin Graham is often quoted as having said "in the short run the market is a voting machine and in the long run it is a weighing machine." Yet, oddly, in Security Analysis, if Google Books is telling me the truth, it appears that Graham (or Dodd?) said flatly,

In other words, the market is not a weighing machine, in which the value of each issue is registered by an exact and impersonal mechanism, in accordance with its specific qualities. Rather we should say that the market is a voting machine, whereon countless individuals register choices which are partly the product of reason and partly the product of emotion.

and also said, equally flatly, [Earlier mistranscription corrected]

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.

In both cases, that's the end of it. He does not go on to say anything else about the "long run" being different.

That's from what's supposed to be a facsimile reprint of the first edition.

So, does anyone know: did Graham actually say somewhere else that in the long run the market is a weighing machine? Did he add that later? Anyone have a source?

Or did he actually say it is not a weighing machine, it's a voting machine... period?

[SVariance1]

I see the quote in the Intelligent Investor but it looks like Jason Zweig is claiming he said it. I have a hard copy of this book. I will take a look

[CassiusKing]

Very good question. Let me take a look thru a couple of my books.

[richard]

I see the quote in the Intelligent Investor but it looks like Jason Zweig is claiming he said it. I have a hard copy of this book. I will take a look

As I mentioned in another thread on this subject, the latest edition of The Intelligent Investor includes commentary by Jason Zweig. The commentary includes "As Graham liked to say, in the short run the market is a voting machine, but in the long run it is a weighing machine."

[CassiusKing]

On this topic, sorry for the threadjack, are there any other Boglehead members who are members of "The Corner of Berkshire and Fairfax" board? The former Berk MSN Shareholders board?

[nisiprius]

I see the quote in the Intelligent Investor but it looks like Jason Zweig is claiming he said it. I have a hard copy of this book. I will take a look

As I mentioned in another thread on this subject, the latest edition of The Intelligent Investor includes commentary by Jason Zweig. The commentary includes "As Graham liked to say, in the short run the market is a voting machine, but in the long run it is a weighing machine."

Well, we shall see whether Jason Zweig responds to a query sent to info@jasonzweig.com.

[FafnerMorell]

It's a shame you didn't ask this question last week - I had a copy of the 1949 edition (reprinted with a foreward by Jack Bogle, of all folks) borrowed from the library, but had to return it.

http://www.amazon.com/Intelligent-Inves ... 0060752610

One thing that struck me is the number of companies that have come and gone over the years.

[SVariance1]

This is the best I can do: (The 1993 Berkshire Hathaway letter to shareholders)

As Ben Graham said: "In the short-run, the market is a voting
machine - reflecting a voter-registration test that requires only
money, not intelligence or emotional stability - but in the long-
run, the market is a weighing machine."

[CassiusKing]

I have the 1934 edition of Security Analysis, but I'm having no luck finding the quote.

[SVariance1]

I have the 1934 edition of Security Analysis, but I'm having no luck finding the quote.

You must be a speed reader

[yobria]

Responding to the quote posted itself, a lot must have changed in 80 years if stock prices in 1934 were the result of "human reactions", not "carefully thought out computations".

I used to work in the research dept. of a major investment bank - quite a few computations in their price calculations. Doesn't mean the market can't guess wrong, of course.

I guess that makes sense - computational power is probably a billion times greater now than in '34. There wasn't much *to* do but "react" back then.

Nick

[CassiusKing]

I have the 1934 edition of Security Analysis, but I'm having no luck finding the quote.

You must be a speed reader

Haha! Just flipping through optimal chapters.

[NAVigator]

A google of the quote attributes it frequently to The Intelligent Investor I skimmed my copy of the book (Fourth Revised Edition) and have had no luck finding it.

Jerry

[grayfox]

Benjamin Graham is often quoted as having said "in the short run the market is a voting machine and in the long run it is a weighing machine." Yet, oddly, in Security Analysis, if Google Books is telling me the truth, it appears that Graham (or Dodd?) said flatly,

In other words, the market is not a weighing machine, in which the value of each issue is registered by an exact and impersonal mechanism, in accordance with its specific qualities. Rather we should say that the market is a voting machine, whereon countless individuals register choices which are partly the product of reason and partly the product of emotion.

and also said, equally flatly, [Earlier mistranscription corrected]

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.

In both cases, that's the end of it. He does not go on to say anything else about the "long run" being different.

OK, I can understand what Ben Graham means by the market being a voting machine. I'm thinking of an analogy. Suppose there is a prize bull that weighs exactly 1547 pounds. But the scale is broken or doesn't go up high enough, so they can't actually weigh the bull. So everyone votes what they think the bull weighs, 1600, 1625, 1525, etc. Then you take the average and it is 1575 pounds.

So exactly how would their voting machine turn into weighing machine in the long run?

Unless they get a scale that goes high enough, they will always just be "voting" and never "weighing". They'll never know if they were over or under the actual weight. In that respect, it seems like the market is always just voting and maybe the whole idea of the market weighing anything is just a lot of bull.

[nisiprius]

Zweig has replied. If he gives permission I'll quote in full.

He says he ran into this issue a year ago, and eventually contacted Warren Buffett himself. My summary of what he said:

1) Zweig doesn't think it appears in Graham's published writing.

2) Zweig says Buffett is certain that Graham said it many times in class and to people close to him, that Buffett is an unimpeachable source, and that "Graham said it, even if he never wrote it."

3) Zweig's pretty sure that Buffett has published writings in which Buffett puts the saying within direct quotation marks.

[nisiprius]

OK, I can understand what Ben Graham means by the market being a voting machine. I'm thinking of an analogy. Suppose there is a prize bull that weighs exactly 1547 pounds. But the scale is broken or doesn't go up high enough, so they can't actually weigh the bull. So everyone votes what they think the bull weighs, 1600, 1625, 1525, etc. Then you take the average and it is 1575 pounds.

So exactly how would their voting machine turn into weighing machine in the long run?

Unless they get a scale that goes high enough, they will always just be "voting" and never "weighing". They'll never know if they were over or under the actual weight. In that respect, it seems like the market is always just voting and maybe the whole idea of the market weighing anything is just a lot of bull.

I think you're right.

I'm trying and failing to come up with an a version of your analogy that captures the idea of opinions that are based on quantitative analysis of an increasing volume of data, but are still just opinions.

[partisan]

On this topic, sorry for the threadjack, are there any other Boglehead members who are members of "The Corner of Berkshire and Fairfax" board? The former Berk MSN Shareholders board?

Yes, I'm a member over there with the username "oddballstocks".

[NAVigator]

Nisi, was this exercise really a ploy to get some of us to re-read The Intelligent Investor? The search for the quote provided an excellent and unplanned review of this fine book. Thanks!

Jerry

[richard]

OK, I can understand what Ben Graham means by the market being a voting machine. I'm thinking of an analogy. Suppose there is a prize bull that weighs exactly 1547 pounds. But the scale is broken or doesn't go up high enough, so they can't actually weigh the bull. So everyone votes what they think the bull weighs, 1600, 1625, 1525, etc. Then you take the average and it is 1575 pounds.

So exactly how would their voting machine turn into weighing machine in the long run?

Unless they get a scale that goes high enough, they will always just be "voting" and never "weighing". They'll never know if they were over or under the actual weight. In that respect, it seems like the market is always just voting and maybe the whole idea of the market weighing anything is just a lot of bull.

Consider Ben Graham's famous story about Mr Market. Some days he's horribly depressed and is willing to sell at bargain prices. Some days he's manic and wants huge prices. The sober investor buys when Mr Market is depressed and sells when he's manic.

Mr Market is the epitome of the voting machine. However, in the long run he gyrates around true value. That true value is the weighing machine. Only the rational patient investor is able to see the long-term weighing.

[richard]

Zweig has replied. If he gives permission I'll quote in full.

He says he ran into this issue a year ago, and eventually contacted Warren Buffett himself. My summary of what he said:

1) Zweig doesn't think it appears in Graham's published writing.

2) Zweig says Buffett is certain that Graham said it many times in class and to people close to him, that Buffett is an unimpeachable source, and that "Graham said it, even if he never wrote it."

3) Zweig's pretty sure that Buffett has published writings in which Buffett puts the saying within direct quotation marks.

Thanks for this.

If Graham didn't say it, he should have.

[SVariance1]

3) Zweig's pretty sure that Buffett has published writings in which Buffett puts the saying within direct quotation marks.

I am enjoying this thread. Thanks Nisiprius.

As I commented earlier, Buffett put a very similar saying in quotes in Berskshire Hathaway's 1993 shareholder letter. I don't know if it is in any of Buffett's other published writings. Based on Google searches, I am pretty sure that Buffett has used the quote verbally as well.

[SVariance1]

This is a very good example of standing the test of time. The quote is just as relevant today as it was when ever he said it. Wouldn't it be great if Graham's classes could be viewed on Youtube. By the way, anyone here( or anyone anywhere who is interested in investing), who has not read the Intelligent Investor, should read this book. You will be glad you did.

[BlueEars]

Benjamin Graham is often quoted as having said "in the short run the market is a voting machine and in the long run it is a weighing machine." Yet, oddly, in Security Analysis, if Google Books is telling me the truth, it appears that Graham (or Dodd?) said flatly,

In other words, the market is not a weighing machine, in which the value of each issue is registered by an exact and impersonal mechanism, in accordance with its specific qualities. Rather we should say that the market is a voting machine, whereon countless individuals register choices which are partly the product of reason and partly the product of emotion.

and also said, equally flatly, [Earlier mistranscription corrected]

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.

In both cases, that's the end of it. He does not go on to say anything else about the "long run" being different.

OK, I can understand what Ben Graham means by the market being a voting machine. I'm thinking of an analogy. Suppose there is a prize bull that weighs exactly 1547 pounds. But the scale is broken or doesn't go up high enough, so they can't actually weigh the bull. So everyone votes what they think the bull weighs, 1600, 1625, 1525, etc. Then you take the average and it is 1575 pounds.

So exactly how would their voting machine turn into weighing machine in the long run?

Unless they get a scale that goes high enough, they will always just be "voting" and never "weighing". They'll never know if they were over or under the actual weight. In that respect, it seems like the market is always just voting and maybe the whole idea of the market weighing anything is just a lot of bull.

Here is one answer to the analogy: you are just making an analogy and it breaks down because of the time factor. People make bets on the future. Then news that confirms or refutes those bets comes in. In other words, the bull's weight is not forever just a guess. We are actually weighing many bulls at the same time. Eventually the weight of some of the bulls becomes known (earnings releases, sales numbers, GDP growth, etc).

So to recap, we are betting on the future (guessing at some bull weights) and at the same time news comes in that reflects on past bets (some bull weights are announced).

[grayfox]

It sounds to me like Ben Graham never wrote it, never said it and never believed it. It is a Warren Buffet twist on BEn Graham's idea.

Ben Graham: The market is a voting machine, not a weighing machine.
Waren Buffet: The market is a voting macine in the short run; a weighing machine in the long run.

Different ideas expressing a different philosophy.

I still don't see how the market ever does anything but vote. The only group that does any weighing is the accountants, and they can only tell you how much it weighed last year. Based on previous years' weights, the market votes on what they think it will weigh next year. But the market can never know for sure. No more than make an educated guess. Then a year later the accountants can tell them how far off the guess was, but by then it's too late and the market is voting on the next year. So the market is always voting, never weighing.

[NAVigator]

Why is the meaning of the quote even being discussed? To me it is crystal clear and that is why the quote is used ubiquitously. The question that Nisiprius raised is whether Benjamin Graham wrote this or not.

Jerry

[tadamsmar]

Why is the meaning of the quote even being discussed? To me it is crystal clear and that is why the quote is used ubiquitously. The question that Nisiprius raised is whether Benjamin Graham wrote this or not.

Jerry

The meaning is important evidence. In particular, the emphasis that Graham put on the meaning. Graham says that a weighing machine directly evaluates an attribute whereas a voting machine, at best, indirectly evalutates attributes. Graham said this was the distinction that he was trying to make when he said that the stock market was a voting machine not a weighing machine.

Given the aspects of the meaning of "voting" and "weighing" that Graham focuses upon, it is hard to see how Graham would ever say the stock market was a weighing machine in any circumstances. It alway works via opinion.

And, even in Buffett's case, his actions speak louder than his words. He takes companies private precisely because the market is not a reliable weighing machine in the long run.

[richard]

And, even in Buffett's case, his actions speak louder than his words. He takes companies private precisely because the market is not a reliable weighing machine in the long run.

He takes companies private precisely because the market is not a reliable weighing machine in the short run. He buys when the market irrationally underprices companies compared to long term value.

See my Mr Market post above.

[Random Walker]

Speaking of the Intelligent Investor. I think Warren Buffet says it is the single best book on investing and that the most important chapters are 8 and 20. If someone wants the Readers Digest version, maybe start with those chapters. Once or twice I've picked up the book and read only those chapters.

Dave

[Harold]

It sounds to me like Ben Graham never wrote it, never said it and never believed it. It is a Warren Buffet twist on BEn Graham's idea.

Ben Graham: The market is a voting machine, not a weighing machine.
Waren Buffet: The market is a voting macine in the short run; a weighing machine in the long run.

Different ideas expressing a different philosophy.

I still don't see how the market ever does anything but vote. The only group that does any weighing is the accountants, and they can only tell you how much it weighed last year. Based on previous years' weights, the market votes on what they think it will weigh next year. But the market can never know for sure. No more than make an educated guess. Then a year later the accountants can tell them how far off the guess was, but by then it's too late and the market is voting on the next year. So the market is always voting, never weighing.

I don't know what anyone said or meant. But the weighing analogy does seem to fit with Graham's intrinsic value belief. Buy when the market votes the value as being below the intrinsic value, and eventually the market will likely realize the intrinsic value.

[tadamsmar]

I have the 1934 edition of Security Analysis, but I'm having no luck finding the quote.

You can seach it at Google Books. The quote is not in the book.

[grayfox]

It sounds to me like Ben Graham never wrote it, never said it and never believed it. It is a Warren Buffet twist on BEn Graham's idea.

Ben Graham: The market is a voting machine, not a weighing machine.
Waren Buffet: The market is a voting macine in the short run; a weighing machine in the long run.

Different ideas expressing a different philosophy.

I still don't see how the market ever does anything but vote. The only group that does any weighing is the accountants, and they can only tell you how much it weighed last year. Based on previous years' weights, the market votes on what they think it will weigh next year. But the market can never know for sure. No more than make an educated guess. Then a year later the accountants can tell them how far off the guess was, but by then it's too late and the market is voting on the next year. So the market is always voting, never weighing.

I don't know what anyone said or meant. But the weighing analogy does seem to fit with Graham's intrinsic value belief. Buy when the market votes the value as being below the intrinsic value, and eventually the market will likely realize the intrinsic value.

That's my whole point. I don't think that was Ben Graham's philosphy. That is Warren Buffet's philosophy.

Now I'm not an expert on either gentleman, but I did read several books about Warren Buffet. I also read The Intelligent Investor. I seem to recall that Ben Graham's approach was to only buy when the price was below the cash value or something like that. In other words, you could examine the ledgers and say with confidence, this $10 bill here is selling for only $8.

Then Warren Buffet came along and he said, no, I will buy even when that's not the case as long as it's cheap enough. I'll pay $15, because I know that it's value is $20. Eventually, the market will see the light and the price will rise to the intrinsic value.

Two similar, but different philosophies. And I think their differences are expressed in those different quotes.

[Harold]

It sounds to me like Ben Graham never wrote it, never said it and never believed it. It is a Warren Buffet twist on BEn Graham's idea.

Ben Graham: The market is a voting machine, not a weighing machine.
Waren Buffet: The market is a voting macine in the short run; a weighing machine in the long run.

Different ideas expressing a different philosophy.

I still don't see how the market ever does anything but vote. The only group that does any weighing is the accountants, and they can only tell you how much it weighed last year. Based on previous years' weights, the market votes on what they think it will weigh next year. But the market can never know for sure. No more than make an educated guess. Then a year later the accountants can tell them how far off the guess was, but by then it's too late and the market is voting on the next year. So the market is always voting, never weighing.

I don't know what anyone said or meant. But the weighing analogy does seem to fit with Graham's intrinsic value belief. Buy when the market votes the value as being below the intrinsic value, and eventually the market will likely realize the intrinsic value.

That's my whole point. I don't think Graham did believe that. That is a Warren Buffet belief.

Now I'm not an expert on either gentleman, but I did read several books about Warren Buffet. I seem to recall that Ben Graham's approach was to only buy when the price was below the cash value or something like that. In other words, you could examine the ledgers and say with confidence, this $10 bill here is selling for only $8.

Then Warren Buffet came along and he said, no, I will buy even when that's not the case as long as it's cheap enough. I'll pay $15, because I know that it's value is $20. Eventually, the market will see the light and the price will rise to the intrinsic value.

Two similar, but different philosophies. And I think their differences are expressed in those different quotes.

Okay, you're probably right.

[Rodc]

That's my whole point. I don't think that was Ben Graham's philosphy. That is Warren Buffet's philosophy.

And after many decades Warren's memory was corrupted by his own beliefs and he started to remember this as Graham rather than Buffet.

Memory is very unreliable. This sort of thing happens a lot.

Given what Graham actually published, which is very different from Buffet's memory, seems unlikely that Graham believed this.

[allsop]

That's my whole point. I don't think that was Ben Graham's philosphy. That is Warren Buffet's philosophy.

And after many decades Warren's memory was corrupted by his own beliefs and he started to remember this as Graham rather than Buffet.

Memory is very unreliable. This sort of thing happens a lot.

Given what Graham actually published, which is very different from Buffet's memory, seems unlikely that Graham believed this.

As of memory playing tricks there are much research supporting this. With Buffet it is probably more revealing what he actually does than what he says.

[Stryker]

I did a search for weighing in what looks to be the first edition of "The Intelligent Investor" at Amazon link

and the fourth edition at Amazon link

but found no reference to "weighing machine".

Only found in Security Analysis which the OP has already displayed.

Checked page 86 of Janet Lowe's book, "Benjamin Graham On Value Investing", and she refers to the same as the OP, from the 1940 edition of "Security Analysis" page 27.

[pkcrafter]

I would expect WB to post soon and straighten this out.

tadadamsmar wrote:

Given the aspects of the meaning of "voting" and "weighing" that Graham focuses upon, it is hard to see how Graham would ever say the stock market was a weighing machine in any circumstances. It alway works via opinion.

I don't think in the long run opinion has much to do with it. I've always thought weighing machine = wealth accumulation, growing assets, portfolio size. If Graham never actually said this, where did it originate and how did it get attributed to Graham? WB or someone else who knew Graham well?

This is a very well-known, but apparently incorrectly attributed quote--want to win a beer on who said this?


Paul

[SVariance1]

I would expect WB to post soon and straighten this out.

tadadamsmar wrote:

Given the aspects of the meaning of "voting" and "weighing" that Graham focuses upon, it is hard to see how Graham would ever say the stock market was a weighing machine in any circumstances. It alway works via opinion.

I don't think in the long run opinion has much to do with it. I've always thought weighing machine = wealth accumulation, growing assets, portfolio size. If Graham never actually said this, where did it originate and how did it get attributed to Graham? WB or someone else who knew Graham well?

This is a very well-known, but apparently incorrectly attributed quote--want to win a beer on who said this?


Paul

We know for sure that Buffett said it. Buffett says that Graham said it.

[tadamsmar]

I would expect WB to post soon and straighten this out.

tadadamsmar wrote:

Given the aspects of the meaning of "voting" and "weighing" that Graham focuses upon, it is hard to see how Graham would ever say the stock market was a weighing machine in any circumstances. It alway works via opinion.

I don't think in the long run opinion has much to do with it. I've always thought weighing machine = wealth accumulation, growing assets, portfolio size. If Graham never actually said this, where did it originate and how did it get attributed to Graham? WB or someone else who knew Graham well?

This is a very well-known, but apparently incorrectly attributed quote--want to win a beer on who said this?


Paul

It's there in your own quote in the OP. Weighing is "an exact and impersonal mechanism, in accordance with its specific qualities" The market is never "an exact and impersonal mechanism, in accordance with its specific qualities" the long run or the short run, so the market is a voting machine not a weighing machine regardless of the time frame.

I have not read Security Analysis, I just checked it in Google to confirm your findings. Given that the stock market is a voting mechanism on all time frames, how did Graham justify the value of weighing stock via his security analysis?

I can think of some reasons why weighing might be useful, but I would like to hear Graham's argument that weighing can be used to make money in the market.

[tadamsmar]

I would expect WB to post soon and straighten this out.

tadadamsmar wrote:

Given the aspects of the meaning of "voting" and "weighing" that Graham focuses upon, it is hard to see how Graham would ever say the stock market was a weighing machine in any circumstances. It alway works via opinion.

I don't think in the long run opinion has much to do with it. I've always thought weighing machine = wealth accumulation, growing assets, portfolio size. If Graham never actually said this, where did it originate and how did it get attributed to Graham? WB or someone else who knew Graham well?

This is a very well-known, but apparently incorrectly attributed quote--want to win a beer on who said this?


Paul

We know for sure that Buffett said it. Buffett says that Graham said it.

He was talking about a weighing machine for securities. The things you mentioned (wealth accumulation, growing assets, portfolio size) are objective attributes of portfolios not securities.

[nisiprius]

Zweig gave me permission to quote from his emails. I'm going to post what he said in his first email now. He also sent me a second, longer one that's tricky because it's a correspondence and I need to get permission from the other correspondent (or just quote from Zweig and add linking remarks).

I called Warren Buffett and asked him. He, who knows Graham's writings better than anyone else alive, was surprised when I walked him through the same two passages you cited. He had presumed, like many of us, that Graham had written these words. After a few minutes of thinking it through aloud, he realized that he might never have read the maxim after all, but rather that he had heard Graham say these words many times in class and around the office. Even if Graham never wrote them down in canonical form, he stated this view many times to those who were closest to him.

In its most commonly cited form, I think the short-run-voting-machine-long-run-weighing-machine apothegm comes from Buffett, not Graham. In one of the Berkshire Hathaway annual reports (1987? I don't remember which one, to be honest), Buffett attributes the maxim to Graham, in quotation marks. That's the closest to their original form that I believe anyone will find them in. The only other possibility is that one of Graham's students captured these words in some of the lecture notes that are preserved from Graham's value-investing classes from the early 1930s. I haven't read through them all to see if this saying can be found there. But I don't think it's likely. I regard Warren Buffett as an unimpeachable source in this case and, in my opinion, the case is closed: Graham said it, even if he never wrote it.

[nisiprius]

Re memory. Anyone who has spent many decades with a companion will recognize the truth of Lerner and Loewe's song "Yes, I Remember It Well:"

He: We met at nine...
She: We met at eight.
He: I was on time,
She: No, you were late
Both: Ah, yes, I remember it well
He: We dined with friends...
She: We dined alone.
He: a tenor sang, a baritone
Both: Ah, yes, I remember it well.

The song makes light of it, but my wife and I have significantly different recollections of important things. And there are significant events that only one of us remembers. I was saying to friends once in a vague sort of way that one reason for a career shift I made was that the job market for post-docs in my field didn't look so great in the mid-seventies, and she says "Honey, don't you remember? XYZ University had made travel arrangements at their expense for you to fly there and present a talk and interview with them, and then cancelled because the position had been eliminated in a round of budget cuts?" Well, no. I didn't. I'd blotted it out completely. Now I think I do remember, but am I really remembering it and is my memory accurate or is it strongly colored by the story as she tells it?

So, while Zweig may be convinced, I feel that as a matter of strict accuracy the quotation should be presented this way (thanks for the citation, SVariance):

"As Ben Graham said, 'In the short-run, the market is a voting machine--reflecting a voter-registration test that requires only money, not intelligence or emotional stability--but in the long-run, the market is a weighing machine."--Warren Buffet, 1993 letter to Berkshire Hathaway shareholders

or, less pedantically,

"As Ben Graham said: 'In the short-run, the market is a voting machine... but in the long-run, the market is a weighing machine.'"--Warren Buffett.

[SVariance1]

Re memory. Anyone who has spent many decades with a companion will recognize the truth of Lerner and Loewe's song "Yes, I Remember It Well:"

He: We met at nine...
She: We met at eight.
He: I was on time,
She: No, you were late
Both: Ah, yes, I remember it well
He: We dined with friends...
She: We dined alone.
He: a tenor sang, a baritone
Both: Ah, yes, I remember it well.

The song makes light of it, but my wife and I have significantly different recollections of important things. And there are significant events that only one of us remembers. I was saying to friends once in a vague sort of way that one reason for a career shift I made was that the job market for post-docs in my field didn't look so great in the mid-seventies, and she says "Honey, don't you remember? XYZ University had made travel arrangements at their expense for you to fly there and present a talk and interview with them, and then cancelled because the position had been eliminated in a round of budget cuts?" Well, no. I didn't. I'd blotted it out completely. Now I think I do remember, but am I really remembering it and is my memory accurate or is it strongly colored by the story as she tells it?

So, while Zweig may be convinced, I feel that as a matter of strict accuracy the quotation should be presented this way (thanks for the citation, SVariance):

"As Ben Graham said, 'In the short-run, the market is a voting machine--reflecting a voter-registration test that requires only money, not intelligence or emotional stability--but in the long-run, the market is a weighing machine."--Warren Buffet, 1993 letter to Berkshire Hathaway shareholders

or, less pedantically,

"As Ben Graham said: 'In the short-run, the market is a voting machine... but in the long-run, the market is a weighing machine.'"--Warren Buffett.

Nisiprius, great stuff!

[tadamsmar]

Zweig gave me permission to quote from his emails. I'm going to post what he said in his first email now. He also sent me a second, longer one that's tricky because it's a correspondence and I need to get permission from the other correspondent (or just quote from Zweig and add linking remarks).

I called Warren Buffett and asked him. He, who knows Graham's writings better than anyone else alive, was surprised when I walked him through the same two passages you cited. He had presumed, like many of us, that Graham had written these words. After a few minutes of thinking it through aloud, he realized that he might never have read the maxim after all, but rather that he had heard Graham say these words many times in class and around the office. Even if Graham never wrote them down in canonical form, he stated this view many times to those who were closest to him.

In its most commonly cited form, I think the short-run-voting-machine-long-run-weighing-machine apothegm comes from Buffett, not Graham. In one of the Berkshire Hathaway annual reports (1987? I don't remember which one, to be honest), Buffett attributes the maxim to Graham, in quotation marks. That's the closest to their original form that I believe anyone will find them in. The only other possibility is that one of Graham's students captured these words in some of the lecture notes that are preserved from Graham's value-investing classes from the early 1930s. I haven't read through them all to see if this saying can be found there. But I don't think it's likely. I regard Warren Buffett as an unimpeachable source in this case and, in my opinion, the case is closed: Graham said it, even if he never wrote it.

He regards Buffet as a unimpeachable source, but Buffet unimpeachably impeached himself by being surprised the quote was not written by Graham.

What exactly is the maxim suppose to mean?

Let's consider 2 securities. One was a initial offering from 2010. The othe was a initial offering from 1960. The new one has it price set by voters. The old one has its price set by analysts wearing green shades and pouring over dog-eared copies of Graham's book Security Analysis to determine how to weigh this security.

I think you will all agree this is absurd. So, what does it mean?

[Slick8503]

Who else thinks its awesome that nisiprius shoots out an email to Zweig, who gets an answer from Mr. Buffett himself?!

I would also like to say, that I've been a member of many different forums/boards, covering a wide range of topics, and nisiprius is my favortie "poster" by a wide margin.

[huntertheory]

I'm willing to bet that this was Buffett's (unintentional) spin on Graham. The voting machine thing is very similar to Keynes's beauty contest; the market is a bizarre animal. But I think Buffett's larger point is that while you can't predict the gyrations of the market (Mr. Market's offer prices), he believes that they gyrate around some factor of the "intrinsic value" (whatever that is) of some stock. And I think there's *some* truth to that: Pets.com and Coca-cola may trade for similar prices for some period of time, even a substantial one, but eventually the one that generates actual cash and profits and has real assets has to outlive the one that has no business model whatsoever.

Price is what makes value investing -- or any investing -- so vexing; in theory we should be able to identify which companies are better than others, but the question is what should you pay for them? And, despite some dire warnings, there has to be *some* intrinsic value because everything could have a sale price or a liquidation value. Buffett himself is the perfect example: He can buy an entire company as if it was a simple dividend stock or even a bond, as he can identify what his own yield is just like you or I might buy a treasury. Private equity guys essentially do the same thing, though their profits are largely driven by the tax advantages of only being taxed at the partnership rate and the interest deductions they take on their massive leverage.

In any event, I think there's no question that Keynes and Graham were right: the market is a voting contest and a beauty contest. Whether Buffett is right -- whether it does some weighing too -- is a much more difficult question. And as nisi says, even if it is one it's not clear we can do much to gain from it.

Final point: I think one problem with any discussion of investing is the difference between "Control Investors" and "Passive Investors," i.e. us. I think value investing is a legitimate strategy for control investors: You can figure out what you think a company is worth based on what you can actually predict it will do for you (what you can sell it for, what cash flows it will generate or you can distribute, etc). The rest of us have far too little control as shareholders to be able to do much. This is one reason why I think it's unfair to compare Buffett to Bill Miller or Bruce Berkowitz; Buffett employs too many strategies and has too much control over his investments to be compared to simple stock pickers (and it's too flattering to them). That said, it still highlights nisi's point that we individuals are simply playing a different game.

[huntertheory]

Who else thinks its awesome that nisiprius shoots out an email to Zweig, who gets an answer from Mr. Buffett himself?!

I would also like to say, that I've been a member of many different forums/boards, covering a wide range of topics, and nisiprius is my favortie "poster" by a wide margin.

I will agree to this as well. For an internet message board, this may be the greatest thread I've ever seen. Think of all the boards out there that invoke Warren Buffett, and this one actually gets an answer from him.

[richard]

He: We met at nine...
She: We met at eight.
He: I was on time,
She: No, you were late
Both: Ah, yes, I remember it well
He: We dined with friends...
She: We dined alone.
He: a tenor sang, a baritone
Both: Ah, yes, I remember it well.

I always liked that movie.

Memory is much less reliable and much more malleable than most believe. False memories are very common and rather easy to induce.

Thanks again for your efforts on this

[SVariance1]

Zweig gave me permission to quote from his emails. I'm going to post what he said in his first email now. He also sent me a second, longer one that's tricky because it's a correspondence and I need to get permission from the other correspondent (or just quote from Zweig and add linking remarks).

I called Warren Buffett and asked him. He, who knows Graham's writings better than anyone else alive, was surprised when I walked him through the same two passages you cited. He had presumed, like many of us, that Graham had written these words. After a few minutes of thinking it through aloud, he realized that he might never have read the maxim after all, but rather that he had heard Graham say these words many times in class and around the office. Even if Graham never wrote them down in canonical form, he stated this view many times to those who were closest to him.

In its most commonly cited form, I think the short-run-voting-machine-long-run-weighing-machine apothegm comes from Buffett, not Graham. In one of the Berkshire Hathaway annual reports (1987? I don't remember which one, to be honest), Buffett attributes the maxim to Graham, in quotation marks. That's the closest to their original form that I believe anyone will find them in. The only other possibility is that one of Graham's students captured these words in some of the lecture notes that are preserved from Graham's value-investing classes from the early 1930s. I haven't read through them all to see if this saying can be found there. But I don't think it's likely. I regard Warren Buffett as an unimpeachable source in this case and, in my opinion, the case is closed: Graham said it, even if he never wrote it.

He regards Buffet as a unimpeachable source, but Buffet unimpeachably impeached himself by being surprised the quote was not written by Graham.

What exactly is the maxim suppose to mean?

Let's consider 2 securities. One was a initial offering from 2010. The othe was a initial offering from 1960. The new one has it price set by voters. The old one has its price set by analysts wearing green shades and pouring over dog-eared copies of Graham's book Security Analysis to determine how to weigh this security.

I think you will all agree this is absurd. So, what does it mean?

The sentiment is clear: short run price movements can be driven by factors other than fundamentals. In the long run, fundamentals are the key determinants of performance.

[richard]

I'm willing to bet that this was Buffett's (unintentional) spin on Graham. The voting machine thing is very similar to Keynes's beauty contest; the market is a bizarre animal. But I think Buffett's larger point is that while you can't predict the gyrations of the market (Mr. Market's offer prices), he believes that they gyrate around some factor of the "intrinsic value" (whatever that is) of some stock.

This seems spot on. http://www.bogleheads.org/forum/viewtop ... 45#1106345

At any moment, the market could well be an irrational voting machine, but it tends to circle around true value. The intelligent investor takes advantage of that by buying during the market's depressed phase and selling during the market's manic phase. It is because in the long-run the market bounces above and below true value (i.e., be a weighing machine) that the intelligence investor is able to profit.

At the end of the day, I'm not sure it matters who actually said it. It's a great quote. Unfortunately, the number of people who are intelligent investors able to profit from the market's gyrations is incredibly small, so it doesn't really help us.

[Verde]

What exactly is the maxim suppose to mean?

Let's consider 2 securities. One was a initial offering from 2010. The othe was a initial offering from 1960. The new one has it price set by voters. The old one has its price set by analysts wearing green shades and pouring over dog-eared copies of Graham's book Security Analysis to determine how to weigh this security.

I think you will all agree this is absurd. So, what does it mean?

I think part of the answer is that viewed day by day stock prices seem capricious, affected inordinately by sentiment, but in the long-run stock investors collect dividends, which makes up a major share of their return – dividends are real measurable (weigh) cash flows.