Forget Ben Graham’s Weighing Machine: Markets Are All About Votes, and Technicals Know the Score
From IBM’s $50 Billion Buyback Bust to Walgreens’ Fall, Price Tells the Real Story
The Voting Machine Runs Everything
Markets are less about what a company is and more about what those who participate in them do. Fundamental investors, clutching their copies of Ben Graham’s Security Analysis, love to quote him:
“In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”
Elegant, poetic, almost wise. But wrong. The weighing machine is just a voting booth with better branding. Buy orders, sell orders, HODLing, panic-dumping—these votes collectively decide the weight. Always, both in the short and long term.
Value Traps: When Fundamentals Lie
Value traps are the market’s cruelest prank. A company prints cash, sports a low P/E, maybe buys back stock like it’s Black Friday. Fundamentals scream “buy!” Yet the stock sits there, or worse, slinks downward. Why? Market participants, whether humans, algos, or your cousin who day-trades, sell every time the price twitches up.
No income statement or balance sheet, no matter how pristine, can outmuscle collective apathy. Technical analysis, staring coldly at price and volume, sees this. Fundamentals? Too busy admiring the company’s assets to notice the market’s mood.
Microsoft under Ballmer (2000-2014): The Thermostat That Broke Fundamentalists
Take Microsoft under Steve Ballmer (2000–2014). A cash juggernaut, growing net income from $9.4 billion in 2000 to $22 billion by 2013. In 2011, its P/E was 7—not a typo—versus the S&P 500’s 16. Price-to-book? A cozy 2–4. Fundamentals said: grab this steal. But the stock? A “thermostat stock,” stuck between $20 and $35 (split-adjusted).
Technicals told the truth. Death crosses (when the 50-day moving average dives below the 200-day) flashed in 2000 (dot-com crash), 2008 (financial crisis), and 2011 (Nokia acquisition flop). Golden crosses? Rare, fleeting, like a sunny Seattle day. Relative Strength Index (RSI) loafed between 40 and 60, a sign of neutral momentum. Even on earnings beats, RSI barely hit 70. Oversold moments (RSI < 30) in 2008 and 2011 led nowhere. The market voted “pass” on Ballmer, and technicals read the ballots. Meanwhile, the fundamentals still dreamed of Windows dominance.
IBM when Buffett owned it (2011-2018): Buffett’s $11 Billion Misstep
Warren Buffett’s Berkshire Hathaway bet $11 billion on IBM in 2011, charmed by a P/E of 7–8 from 2011 to 2017 (S&P 500 P/E over the same period: 15–24). IBM’s $50 billion in buybacks from 2011–2018 propped up EPS at the expense of R&D and its financial position.
In 1996, Buffett commented that he has “enormous respect for the power of a really outstanding business. And we recognize how scarce they are. And if a management wishes to further intensify our ownership by repurchasing shares, we applaud.”
But it turned out that IBM wasn’t outstanding. The stock sank from $200 in 2012 to $110 by 2018.
Technicals waved warning flags: death crosses in 2013, 2015, and 2017 (e.g., 2015, stock fell from $170 to $140). Golden crosses, like one in 2012, fizzled fast. RSI stayed in the 40–60 range, too weak to rally. Oversold conditions (RSI < 30) in 2015 and 2018 didn’t spark recoveries.
“No IT manager was ever fired for buying IBM,” but fund managers sure were. Technicals saw the votes piling up against Big Blue; fundamentals missed the memo.
Walgreens (Since 2015): A Pharmacy in Decline
From 2015 to 2016, Walgreens’ P/E was 14–19, below the S&P’s 21–22; price-to-book was under 2. But the stock plummeted from $90 in 2015 to $11 today.
Technicals screamed “trap”: death crosses in 2016, 2018, and 2020 (e.g., in 2018, the stock fell from $70 to $50 on Amazon’s pharmacy threat). Since 2017, the stock (WBA) spent most of the time below its 200-day moving average.
RSI stayed around 30–50, unmoved by dividend hikes. Rare RSI spikes above 70 (e.g., 2015) led to sharp drops, confirming bearish sentiment. The market voted “no” on Walgreens, and technicals caught it. Fundamentals? Still counting pills.
Blue Chips, Strong Fundamentals, Weak Stocks
With the full benefit of hindsight, it’s easy to say that one would've known all along that these three specific blue chip companies weren’t as strong as they seemed at the beginning of their respective analysis periods, one cannot argue that the fundamentals underpinning each one of these companies, whether ratios measuring earnings and assets like P/E or P/B, market share, brand recognition, or moat, weren’t strong at the time.
Microsoft dominated software, IBM was a tech titan, Walgreens a pharmacy leader. Yet the market’s votes, reflected in price action, overruled their fundamentals. Technicals saw the disconnect; fundamentals didn’t.
Bitcoin: Votes Without Value
Contrast this with Bitcoin. No fundamentals, no P/E, just vibes. Yet it’s soared because people bought and held. Technicals like rising volume, bullish MACD, and RSI hitting 80 caught the wave. Fundamentals? Busy calling it a tulip bubble. The market can stay irrational longer than you can stay solvent, and technicals thrive on that. They track behavior, not “immutable characteristics.”
If you're observant enough of current and past data, market participants will collectively tell you whether they will buy or sell an asset in the future, i.e. whether the price will go up or down.
Technicals: The Universal Edge
If you profit from a low P/E, great. That means enough investors agreed with you about the potential of the stock. But stock buying is behavior that technicals see it. A low P/E looks juicy, but if the stock stays below its 200-day moving average and RSI is flat or down, the market’s saying: no one cares.
Technicals work for stocks, crypto, or any asset because they’re about price. They let you build an antifragile portfolio, with a short component that gains in crashes. Fundamentals can’t do that.
Macro: The Fundamentalist’s Blind Spot
No stock, no matter how “undervalued,” escapes macro, e.g. interest rates, recessions. Technicals bake in the macro because the price is affected by investor behavior, which is influenced by macro. Fed hikes? The 50-day moving average might drop below the 200-day moving average.
By contrast, looking at fundamentals means crunching discounted cash flows while your portfolio bleeds. Waiting for the weighing machine to “work” isn’t fun, especially when your spouse questions your picks. You’ll sell at the worst time because we’re all human and we’re all scared of losing money.
Price Pays, Votes Win
Price is what pays. Technicals track the votes that drive it. Fundamentals hope the votes align. Watch behavior, not ratios. And sorry, Ben Graham, the stock market is actually always a voting machine, even over the long term.
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