4 ms·
These types of articles are a serious problem. Stock prices reflect confidence in a company. The underlying "fundamentals" are only relevant insofar as they dri
by raganwald 15y ago
These types of articles are a serious problem. Stock prices reflect confidence in a company. The underlying "fundamentals" are only relevant insofar as they drive investors to buy and hold the stock. Negative articles about a company's business performance depress the stock by convincing investors that other investors will sell the stock.
But articles like this are a kind of gut-shot: They directly state that investors don't like the stock. This kind of thing can accelerate a stock's fall from grace, leading to more negative articles, more bearish sentiment, and the whole thing becomes a vicious cycle.
This is very different from an article being bearish about the company's management or products. You can hire new managers. You can fix broken product, buy new products, or develop new products. But you can't buy investor confidence (as Microsoft has proven with their dividends).
- aheilbut 15y agoApparently those dividends and the underlying "fundamentals" do buy something, because the company is still worth $200B.
- raganwald 15y agoI guess they do. How much of that stock do you own? I made the mistake of selling mine in the late nineties.
- aheilbut 15y agoNo position, and I don't like the stock, but my point is that the fundamentals do matter. MSFT remains a very large and profitable company, and it is at a stage where that influences valuation much more than sentiment does.
- dstein 15y agoExcept all of Microsoft's profitable business lines are in a dying industry, the personal computing industry. It's kind of an ironic role-reversal for IBM and Microsoft given their history and the way MS became the behemoth it is.
- raganwald 15y agoAnd my point is that the fundamentals matter insofar as they drive investor beliefs about other investors. I think what you are saying and what I am saying are compatible. As to whether their "fundamentals" will outweigh a decline in confidence brought about by this kind of negative press coverage... If I knew what would happen for sure, I could make a comfortable living as an investor.
- Symmetry 15y agoDo vicious downward cycles actually happen? I'd expect that as soon as the stock price dipped below the value of the expected discounted dividend stream the smart money would swoop in, and could profit even without having to care about the future stock price. EDIT: I should point out that this doesn't happen with vicious circles or rising stock prices in any reliable way. Well, people shorting the stock can have sort of the same effect but not as well. Some companies manage to get by on investor's hope for future huge dividends someday without ever having to issue any right now, like Apple, but I don't think its a loss for society is investors lose their confidence in "someday" and start forming their expectation based on past performance. So I guess I'm saying that to the extent that negative articles can and do drive down a company's stock price those of us who haven't invested in them should be happy.