Ep 702 | Warren Buffett’s Simple Idea That Explains the Stock Market

Thank you for joining me today. It's Brian Gubernick, and welcome to the No Days Off podcast, where we believe that every single day brings a new opportunity to get better. Let's talk a little bit, uh, about investing today. There's a quiet truth in investing, specifically stock market investing, that I think almost nobody admits. Most people, even people who, who think they're smart or probably are really smart, those that are informed, those that are experienced, most people do not understand, truly understand, how the stock market actually works. They misunderstand what drives or moves prices. They misunderstand what what creates wealth in the long term. And they misunderstand what Warren Buffett has been trying to teach for 60 or 70 years. Because Warren has one quote that I've heard him in person repeat, I've read him repeat it over and over in his, I mean, I'm sorry, I've read what he's written over and over again. And it's actually from his mentor, Benjamin Graham. And I think it exposes the, the entire misunderstanding. What Warren Buffett says is that in the short run, the stock market is a voting machine, but in the long run, it's a weighing machine. Let me say that again. In the short run, the stock market is a voting machine, but in the long run, it is a weighing machine. That, that single quote, that single sentence. I think it explains both why most investors fail and why a more disciplined few build significant wealth. So today I want to break down this phrase because I'd heard it many times but never really thought it through or dug deep into it. But I want to do it today. I want to break it down— what people get wrong and what Buffett is actually saying and how it's played out in the real world. So if you watch financial news or you read financial news or you scroll X or Facebook, you'd think the stock market is some logical, even perfectly logical machine that's, that's reacting to objective information. One headline in, in the Wall Street Journal though pushes a stock down by 6%. An earnings, uh, beat pushes another stock up by 4%. A rumor in some chat room moves millions, if not billions of dollars. See, most people assume those movement— those movements represent some element of truth. But Warren Buffett has been yelling the same warning for, for decades. And what he's been saying is short-term price movements are not truth. They're just simply noise. In other words, they're votes, but they're not weight. I think confusing the two is a really, really simple way to stay broke. So what's Warren Buffett actually saying here? Let's, let's start with, uh, breaking down this famous quote. He mentioned, he mentions the short run and, and it being a voting machine. This is his way of saying the market is reactive. It's emotional. It's impulsive. People are voting on fear, on popularity, on narratives, on, on what their friends are buying, on what CNBC maybe talked about that morning. The votes, though, they have nothing to do with the real value of the business. In the long run, though, the market's a weighing machine. In other words, eventually all emotions begin to disappear. The noise subsides, it fades, and what remains is the company's actual weight. What do I mean when I say weight, or what does Warren mean when he says weight? Earnings, cash flow, return on capital, competitive advantage, management skill, strategy, execution of that strategy. See, Warren Buffett and Charlie Munger built their entire careers, built their entire Berkshire Hathaway empire on this, this one simple idea, which is ignore the votes and trust the weigh-in. The reason most people do not get wealthy is because they never stick around long enough for the actual weigh-in to occur. Here's the— here's what I believe, you know, after my analysis and thinking through this, here's what I believe is, is the root problem. People think the market is supposed to make sense every day. It does not make sense every day. It never has made sense every day. People panic when prices fall. They chase stocks when they rise. They interpret the volatility as, as some deeper meaning than it really is. They think that short-term movement is, is a verdict. And while they may not express that verbally, Their actions say otherwise. Warren Buffett would tell you that short-term movement is just the crowd voting, and it's doing so based on emotion. And guess what? The crowd is usually wrong. Think about how many people sold stock during 1987, during the year 2000, during the year 2008. How about during March 2020. See, in, in those 4 time frames I just gave you, panic ensued, and it made individuals misread what was actually happening. See, the winners weren't smarter, they simply understood the voting and weighing concept better than everyone else. Now, I am speaking as somebody that in 2009, so just after 2008 collapse, 2009 saw all this noise and decided, you know what, I need to get out of the market. Man, am I pretty bummed by that decision. You know, it was 16 or so years ago, and if I had held everything I had then instead of panicking because of the noise, because of the voting that was occurring, I might be in a little bit different a position I am today. Think about Amazon in 2000, 2001. Amazon, the company dropped 90% after the dot-com crash. Investors, supposedly intelligent investors, thought the company was totally finished. And that was the voting machine. That was the voting machine at work, the fear, the pessimism, the confusion. Meanwhile, quietly, the weighing machine was building explosive revenue growth, building a logistics network, building a platform advantage that nobody else could possibly match. And 20 years later, well, Amazon becomes one of the most valuable companies in history. See, the votes were wrong, the wait was right. Apple in the early 2000s, people, people thought Apple had no shot. That it was just a small, you know, computer company that had a niche. Again, that was the voting machine. But underneath, the weighing machine saw innovation, product innovation. It saw this brand loyalty that was being created. It noticed supply chain mastery. It found this developing ecosystem that would lock customers in, like me and like many of you, for decades. The weight eventually crushed the votes. Another, another, you know, example: Tesla. From, call it, 2018-ish to 2020. In one year, people are saying Tesla's going bankrupt. The next year, they're saying Tesla is unstoppable. Same company, same leadership, same product. The votes flipped. The fundamentals, though, did not change. So once the weight, as I'm describing weight here today, became undeniable— the margins, the demand, the scale at which they were producing things— the market repriced, and it repriced rather quickly. Another Warren Buffett lesson: the market eventually gets it right, just not on your timeline. The market eventually gets it right, just not on your timeline. How about Nvidia? For about a decade. The analysts didn't really love it all that much. Investors underestimated it. Most people had no clue what NVIDIA was even up to, but the weighing machine knew. The weighing machine saw AI leadership. It saw software lock-in. It saw this dominant architecture, this world-class execution. And when the short— when the truth finally surfaced Well, the stock didn't just rise. I mean, it, it, it detonated. It just took off. Now, why does this matter for you? Why does it matter in your life and, and not just in your portfolio? Because yes, this, this episode's about investing, but like most things here at No Days Off, it's applicable outside of the, of the business forum. It's, it's kind of about how we misread everything when we use the wrong timeline. People quit businesses too soon. They, they drop strategies too early. They change careers because of discomfort, temporary discomfort. They judge progress based on immediate results, and they're living in this, this voting machine sort of, sort of environment, reacting to the noise, chasing validation. But real success, success in wealth and business, fitness, relationships It comes from the weighing machine, the things that, that matter long term, like discipline and the systems and the consistency, the quality decisions repeated, the things that matter long term, like time. See, Warren Buffett's genius isn't predicting the future. It's ignoring all of the noise long enough to let the truth emerge. So what's your takeaway? What's your takeaway here? The takeaway is this: the market is simple when you understand that in the short term it's noise and in the long term it's truth. I think people who misunderstand this sell stocks too soon, panic too quickly. They gamble or speculate instead of investing, and they confuse volatility with, with failure versus just short-term noise, noise. But people who do understand this, they stay calm, they buy great businesses, great stock, they allow time to do the compounding, they build wealth as a result. So Warren Buffett's quote isn't necessarily just about stocks, it's about how to navigate, uh, this world that we operate in that's full of noise and full of distractions. And if you stop reacting to the votes and start betting on, on, on the wait then you have a higher chance at winning. Just something to think around today. I'm not even going to give you some action steps, but just as you think around your investment strategy and think about your business strategy and, and strategy in all things in life, just recognize that short-term is about voting. Long-term though is about truly understanding the weight. That's all I have for you today, the No Days Off Podcast. Thank you so much for listening, and remember, every single day brings a new opportunity to get better. So let's get after it.