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.
- 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.