Quote for the Week

The necessity to distinguish between the short run and the long run is one of the most difficult tasks the businessman faces — and yet perhaps it is the most essential of his tasks. At the same time, however, how does one determine whether the events of the past few weeks or months are just random blips or early harbingers of a more fundamental shift in the long-run environment? If short-run decisions made without regard to the long run are the sure road to disaster, we must also never forget that the long run is nothing more than an extended series of shorter-run variations. — Peter Bernstein (source)

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Quote for the Week

After the violence of a crisis has subsided, it becomes clear that it is not upon Capital, nor even upon legitimate commerce that the blow has fallen heaviest. As a rule. Panics do not destroy Capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works…

Broadly defined, then, Panic is the destruction, in the mind, of a bundle of beliefs. As a first result of that destruction, a mass of paper documents, the outward expressions of those beliefs from which they derived their circulating force, becomes a mere dead residuum, leaving a void which can only be filled by other agents possessing that vital grasp on belief which they have lost. And the void must be filled. The volume of transactions and engagements cannot immediately be reduced. But Panic, the most rigorous of realists, rejects the dead symbols of Credit, and exacts Capital in the mobile form of currency. Suum cuique is now the universal rule, and everybody reclaims his own. The usual magazines of Capital in that form are rapidly drained, and the rate of its hire is proportionately raised. The Panic period is therefore marked by great scarcity of mobile Capital; because, though not less in quantity than before, it is drafted off into a thousand unusual channels to perform the functions commonly exercised by Credit. — John Stuart Mill (source)

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Quote for the Week

Earning power must always be the chief criterion of stock values — exceeding in importance asset backing, financial condition, and even dividend return. For it is the average rate of earnings which determines the real value of the physical assets, which weakens or strengthens the cash position, and which finally must control the dividend policy. — Benjamin Graham, 1922 (source)

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