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> What I do not understand is, what the company performance has anything to do with its stock performance? It's not like they are paying dividends, right? Stoc
by xkjkls 7y ago
> What I do not understand is, what the company performance has anything to do with its stock performance? It's not like they are paying dividends, right?
Stocks are valued at the long term discounted value of their future cash flows. Are the markets always accurate and rational? No, but that's how they are intended to be valued.
- mrtksn 7y agoIs there a central authority that makes the calculation and assigns the right value? AFAIK, there's no such thing and the price is determined by the amount that a buyer agrees to pay. It has nothing to do with company performance. The company performance can result in an acquisition, bankruptcy or shares sales/buybacks though, but until that happens nobody knows.
- xkjkls 7y ago> It has nothing to do with company performance. If that's true then no one would ever invest in stocks.
- mrtksn 7y agoWhy wouldn't they?
- xkjkls 7y ago? Because investing is entirely about determining future value?
- mrtksn 7y agoof what? Stock? If so, the company performance is irrelevant as people might buy the stock for any reason(some might consider the company performance too, of course).
- xkjkls 7y agoNo? Plenty of people buy stocks based on the financial performance of the company, and given that the majority of capital invested in stocks are large institutional investors, the vast majority of money invested in stocks are from people who care about financial performance
- mrtksn 7y agoand plenty of people but stocks on their horoscope
- xkjkls 7y agoNot a meaningful amount of capital though.
- mrtksn 7y agoThe idea here is that stock prices are determined by the people who want to pay for that stock. It's not a function of the company's operational success. What you are saying is circular reasoning, you essentially say that company performance matter because many people think that is should matter. There's no causality relationship here, essentially people think that matters because other people thing that matters.
- xkjkls 7y agoNo. Businesses are eventually valued by the capital they can return. Otherwise numbers are all meaningless