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Basically - The big Funds drive volume, and therefore stock price. They're looking for a return on investment, through either Dividends (small) or Equity Growt
by JacobAldridge 17y ago
Basically - The big Funds drive volume, and therefore stock price.
They're looking for a return on investment, through either Dividends (small) or Equity Growth (potentially massive). When they buy a Share, they want to know it's going to be worth more to them in the future.
Since no company is going to pay dividends at 30% of the share price, but the market can move that much fast (up 50% in Australia since the March 09 bottom), Funds care about Equity Growth.
And they know that growth is driven by volume. When they buy today, they don't care what the fundamentals, profitability etc tells them - they just want to know will there be more Volume in the future?
Did we mention these are the same companies that drive the actual Volume?
Cuban calls it a Ponzi scheme. It can certainly turn into a circle-jerk, where every Fund drives Volume by buying because they expect every other Fund to drive Prices up by driving Volume by buying.
But they forget that the Fundamentals can destroy a company. And a company that doesn't exist, doesn't trade anymore.
- joshu 17y agovolume alone does not drive price.
- JacobAldridge 17y agoNo, that was my fairly basic reading of the OP. Of course, excess Volume in either Supply or Demand will affect prices (down or up respectively).
- salvadors 17y ago> But they forget that the Fundamentals can destroy a company. And a company that doesn't exist, doesn't trade anymore. A wise company with poor fundamentals but a good image and an inflated share price could, however, use that overvalued currency to buy other companies (with better fundamentals) in an all-stock deal. There are some who would say that this is pretty much how the entire internet industry works...