Bullbear Buffett Stock Investing Notes: The important investment ...

"In the final analysis the stock market is not a voting mechanism but a weighing mechanism."
Benjamin Graham, Security Analysis

Valuation metrics have not changed.

• Eventually, every stock can only be worth the present value of the cash flow it is able to earn for the benefit of investors. ?
• In the final analysis, true value will win out. ?
• The important investment question is how you can estimate true value.

Markets can be highly efficient even if they make errors.

• Stock valuations depend upon estimations of the?earning?power of companies many years into the future.?Such forecasts are invariably incorrect.?
• Moreover, investment risk is never clearly perceived, so the appropriate rate at which the future should be discounted is never certain.?

Thus, market prices must always be wrong to some extent.

• But at any particular time, it is not obvious to anyone whether they hold only "undervalued" stocks and avoid "overvalued" ones. ?
• The fact that the best and the brightest on Wall Street cannot consistently distinguish correct valuations from incorrect ones shows how hard it is to beat the market.?

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