Earnings Drive Prices.
Over weeks and months, a stock's price is set by moods — Mr. Market's daily vote. Over years and decades, it is dragged, almost inescapably, by one thing: the earnings of the underlying business. Benjamin Graham said it in a sentence our founder loved to repeat: "Over the short run the stock market is a voting machine, but over the long run it's a weighing machine."
Below, you can operate the weighing machine yourself. Three figures: a model you control, a choice between two businesses, and two decades of real filings. No predictions — just arithmetic.
One Business, Two Lines
The gold line is what the business earns per share, compounding quietly. The silver line is what the market will pay for it on any given day — earnings multiplied by a price-to-earnings multiple that wanders with the mood. Set the growth rate, set the multiple you pay and the multiple you eventually get, choose Mr. Market's temperament, and then do the one thing that changes everything: stretch the horizon.
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The model pins the multiple you choose at purchase and at the end of the holding period; in between, the multiple wanders with Mr. Market's temperament. Dividends are left out — a real owner would collect them on top. Drag your finger or cursor across the chart to read any point in time. Notice what the horizon slider does to the decomposition beneath the chart: over one year, the mood is nearly the whole story; over twenty, it is a footnote.
Two Businesses, One Choice
It is three years in, and the scoreboard is not close. The Sensation grew earnings 45% last year and the market pays 65 times earnings for the privilege. The Steady Compounder grinds out 12% a year and trades at 22 times. Both figures below are the market value of a $10,000 purchase made three years ago. Which would you rather own for the next seventeen years?
The trap is not the Sensation's business — its earnings really do grow more than sixfold over the twenty years. The trap is the price. Growth that arrives more slowly each year, bought at 65 times earnings, spends two decades working off the multiple. This is Principle 6 of The Rational Investor in one picture: the price you pay determines your risk and your return.
The Weighing Machine, in the Wild
Models are tidy; markets are not. Here are two real American businesses across twenty fiscal years of audited filings — earnings per share in gold, the share price at each fiscal year-end in silver, both indexed to 100 at the start. The price line strays, sometimes for painfully long stretches. Watch what it keeps returning to.
View the underlying data
| Fiscal year | Diluted EPS | Price at FY end | Implied P/E |
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Source: each company's annual reports (Form 10-K), as reported and restated by the company where applicable; diluted earnings per share by fiscal year, with the share price on the last day of each fiscal year. Compiled via Financial Modeling Prep, July 2026. Dividends are excluded, so both price lines understate what an owner actually received. These companies were chosen because neither has split its stock in the period shown, which keeps the arithmetic honest — not as recommendations, and not as a representation of anything we own for clients.
This Is Why We Read Annual Reports, Not Price Charts.
If prices follow earnings, then the work of investing is the work of judging future earnings — the durability of a franchise, the honesty and skill of its managers, the price at which the arithmetic favors the owner. That is the whole of the discipline our founder set down in The Rational Investor, and it is how this family has invested for three generations.
Disclosures. These demonstrations are educational illustrations of arithmetic relationships between corporate earnings, valuation multiples, and share prices. They are hypothetical except where labeled as historical filings data, do not depict any actual or model portfolio, and are not investment advice, an offer, or a solicitation. The companies shown in Figure III were selected for illustrative clarity; references to them are not recommendations to buy or sell any security, and Hutner Capital Management client accounts may or may not hold them. Historical results — real or modeled — do not guarantee future results. Investing involves risk, including the possible loss of principal.