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In other words: your share price is a function of the emotions of fickle investors and their expectations (regardless of plausibility) rather than how well your
by FridgeSeal 9y ago
In other words: your share price is a function of the emotions of fickle investors and their expectations (regardless of plausibility) rather than how well your company actually did.
- barrkel 9y agoShare price is an estimation of future performance, not past or current performance. Specifically it's supposedly the net present value of all future cash flows, discounted appropriately.
- ZenoArrow 9y agoHow do you respond to the comments of stock market investors that suggest the market is frequently irrational?
- lmm 9y agoThe market is inherently volume-weighted, and there is much more "smart money" than "dumb money".
- ZenoArrow 9y agoTo give an example of something a smart investor would do, Warren Buffett supposedly only invests in industries he understands in depth: http://www.investopedia.com/articles/05/012705.asp http://www.investopedia.com/articles/05/012705.asp What proportion of investors would you suggest show such restraint? Over half?
- lmm 9y agoThe proportion of "investors"? Low. The proportion of market capital allocation, among people doing active allocation for long-term buy and hold strategies? Very high.
- Malician 9y agoWell, yes, but that's not the point being made: the stock market aggressively prices in expectations ahead of time to avoid losing money. The reason the stock goes down is because the gain is already priced in!
- lmm 9y agoNo. The change in your share price is a function of the change in how well your company is expected to do. The absolute value still corresponds to how well you're doing/expected to do.
- ksk 9y agoThat applies to pretty much all domains. From choosing an employer, restaurant, movie, car to choosing an editor, programming language, keyboard, etc. Humans, some more so than others, trick themselves into thinking they are rational, or that their decisions are firmly grounded.