"In the short term, the market is a ‘voting’ machine whereon countless
individuals register choices that are product partly of reason and partly of
emotion. However, in the long-term, the market is a ‘weighing’ machine on which
the value of each issue is recorded by an exact and impersonal
The gist of the column emphasizes Graham’s first point — the voting process — over his latter point, that of the market as a weighing machine.
I think that unfortunately understates the risk Lehman presents to investors. It also may understate problems with the entire sector.
Einhorn is not trying to talk down Lehman’s stock — not if we understand his methodology, and are being precise about how markets work. Rather, he is trying to make his analysis of Lehman’s balance sheet better understood by the overall market. That is a subtle, but important difference.
Remember, Einhorn didn’t buy those mortgage backed securities on Lehman’s behalf, or lower their debt rating. He is not the one that leveraged them up 32 to 1, or festoon their balance sheet with dicey derivatives.
Rather than focus on " Einhorn’s influence on Lehman’s stock price," I suggest reporters focus on Lehman’s balance sheet, leverage, derivative exposures, counter-party risk, and P&L statements.
Lehman Battles an Insurgent Investor
NYT, June 4, 2008