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Comment by snarkypixel | Hacker News Reader

"The father of value investing, Benjamin Graham, explained this concept by saying that in the short run, the market is like a voting machine--tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine--assessing the substance of a company."

Boring answer, but in the long-term, great businesses go up, whereas crappy businesses go bankrupt.

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I think this was much more true in the long ago era of regulation, (mostly) autarky, and limited market info/trading barriers.

I've looked at "Security Analysis" and it's very much a historical piece - railroads and (practically) buggy whips. Things change relatively faster these days. Yesterday, Kodak was the bluest of chips; today, pretty much a joke. Heck, look at Buffett in the last decade - I'll bet he fully Grahamitized IBM, which didn't make it any less hollow. That sort of analysis, or even certainty (a false premise by definition) just isn't worth the effort for the average ownership span.

In times of plenty, where money flows and pools drives stock prices.

In times of poverty, fundamentals drive stock prices.

We've been in a time of plenty for a historically abnormally long period.

And the time of plenty is primarily driven by monetary policy, is it not?

> plenty is primarily driven by monetary policy

Short-term market cycles are always driven by credit, which is in turn driven by monetary policy.

Kodak is a terrible example. That company had a long decline into irrelevance. Big companies have been doing that forever.

It's a good example because it shows the gulf between organizational/innovational rot and impeccable bookkeeping.

Kodak's signs of decay were visible at least as long ago as the late 70s vis a vis the Polaroid patent infringement case (and the cheesiness of Kodak's own knockoffs).

> this was much more true in the long ago era of regulation

It's still true. We just haven't had, in close to a generation now, the sort of bear market that permits the enforcers of fundamentals to re-emerge: liquidation and bankruptcy against overvaluation; M&A against undervaluation.

Will we? The trend has been for countries to protect their big losers, those underperforming companies that are too big to fail. Started in Japan in the 80s, then Europe in the 2000s, and the U.S. since 2009. Arguably communist countries have always functioned this way, with state-owned enterprises.

The result is a coupling between between the fate of the nation and the fate of its major employers, with loose monetary policy, regulatory capture, and explicit fiscal bailouts to protect it. Then instead of the deadwood being cleaned out, the whole country becomes deadwood, and you get lost generations and social unrest as the only way to throw out ways of doing business that aren't working is to throw out the people in power.

> just isn't worth the effort for the average ownership span.

There's no rule that says you need to hold stocks for the same average period that the rest of the market does. Analyzing securities and purchasing those that are undervalued is still an extremely profitable activity at many hedge funds and prop trading desks. The fact that the average investor is more FOMO-driven these days only makes sound analysis more valuable, just like playing poker with a drunk newbie will have higher variability but better expected value.

I don't disagree - just want to note a difference between sufficient analysis and overthinking the problem (IMHO).

This is true up until the point where your logically sound short of GME comes up against “apes together stronk”

That's why I wrote:

> higher variability but better expected value.

If you put all your money into shorting GME then yes, you will have a bad time when WSB gets excited again. If you have a widely spread portfolio of shorts in overhyped companies with weak fundamentals and longs in underhyped companies with strong fundamentals, having a few trades go against you is not the end of the world.

I remember reading Graham for a finance class in the mid-2000s, and even then it was several decades old.

It's a relevant read if you work in securities analysis. If you're an investor however, the takeaways of the book are more philosophical than actionable. Too much has changed in the market since Graham's time.

The idea of an Uber-type company using VC billions to cover its losses would have been completely alien to him. As would companies doing an end run around the IPO process with SPACs.

They used to. In the era of quantitative easing, governments just pump money into any failing major player.

edit: I see I rustled some jimmies. Feel free to have a look yourself at "modern capitalism".

https://money.cnn.com/news/specials/storysupplement/bankbail...

Pumping money into the market in general has the same effect.

Especially if chosen inflation measures conveniently exclude capital areas money would accumulate (stocks & property).

Yes, agreed.

This is a wildly optimistic way of framing the long-term value of the market.

It’s more likely that the crappy companies will live for the long term - if you measure “crappy” by anything resembling consumer/client benefit.

Are these the same markets? The stock market between investors and companies could be a voting machine while the “stuff” market between customers and companies could be a weighing machine. Then it would be a difference of which market rather than which timescale, potentially allowing the investor market to prop up companies failing in the stuff market for long periods due to nothing more than investor popularity.

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