Puzzling behavior

QWhat could be going on with a company I’m considering investing in? It seems to be doing everything right, as its sales and earnings have been growing at double-digit rates, and it’s carrying no debt. Yet the stock keeps falling. — H.P., Norwalk, Connecticut

AStudy it more closely. Even steep growth rates may be lower than previous levels. Check out expectations, too. If the company and/or Wall Street analysts expect slower growth in the future, that can dampen enthusiasm for the stock, with many people selling shares and thereby depressing its price. Perhaps competitors are fast advancing on the company or questions have been raised about its management or offerings. Remember that investors need to focus on any company’s future more than its past.

Then there’s the stock price itself. Since the company has been growing briskly, investors may have bid up the stock to lofty heights, well above its intrinsic value, and the price may now be settling back to more reasonable levels. Always look at a company’s big picture.

QCan you explain what Warren Buffett’s mentor, Benjamin Graham, meant when he said, “In the short run the market is a voting machine. In the long run it’s a weighing machine”? — K.T., Carson City, Nevada

AGraham was pointing out how from day to day, the stock market reflects the popularity of various stocks and the psychology of investors. Investors “vote” by buying and selling, sending prices up and down. Over the long run, though, the popularity contest fades away and value is what matters. Stock prices ultimately reflect or approach the value of the underlying companies, based on their sales and earnings and their potential growth. Invest for the long term.