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That doesn't really add up, though. The expected future performance of a company is baked into the stock price. When companies do short-term things often the
by tsotha 11y ago
That doesn't really add up, though. The expected future performance of a company is baked into the stock price. When companies do short-term things often the price of their stock falls even as profits rise. Investors aren't stupid.
- gshubert17 11y agoI'll stipulate efficient market theory and all that. But doesn't that depend on a significant fraction of investors being rational and having pretty good information? And on markets not being "rigged"? And I wonder whether the price of current stock market transactions adequately reflects the knowledge of all investors, including the long-term ones.
- tsotha 11y agoI considered editing the post to include the caveat "Where that strategy could make sense for an executive is when he's able to hide (or at least obfuscate) what he's doing." >And I wonder whether the price of current stock market transactions adequately reflects the knowledge of all investors, including the long-term ones. That's sort of an odd way to put it. By definition the market transactions reflect the knowledge of all investors, unless you're postulating they don't apply knowledge when they trade. Do you mean the stock price is influence by people without knowledge other people do have? That's true. But professional and institutional investors have the most influence, and they've got a pretty good idea when managers are eating the seed corn. It's an obvious strategy for executives, so professional investors are always on the lookout. Do some executives get away with padding their bonuses through short term strategies? Sure. But I think it's rare.