Stock prices move for many different reasons.

PaulRen's picture

Stock prices move for many different reasons, far beyond the analytics. 

Stock prices (bonds prices as well, but for different reasons) move for many different reasons, soo often far beyond fundamental analysis or numbers' crunching/ers like some like to advocate, at infinity.  They move on interest rates' up/down, future expectations. On liquidity in the market, on market cap. where institutions can only invest in very liquid stocks, so overvaluing large cap companies.  Ignoring some of the best smaller companies, strictly due to size.  On fashion/sentiment and at time just plain broker biases, like pumping certain stocks, which Thailand is known for.  Sometimes stocks sell off with no reason because the mkt. suddenly got jolted in other ways, so to cover ones' bad investments one sells out good stocks to raise cash.  Stock markets are forward looking, taking profits on good news etc..  Look at example Thailand listed DELTA (79) stock, still trading at a shown p/e of 55, even post its 30% mkt price drop in recent months. Some believe its a good investment (hence regularly trading in the top most active here) because its earnings/sales are growing "double digit"; but I know of select other companies growing just as fast if not more, yet trading at 1/4 of DELTA present mkt. p/e.  Where is the soo praised fundamental analysis on that? 

Retail Investors too often think like consumers. Where if a stock price is suddenly lower, it likely is a bargain. Not so if the news or sentiment changed! Conversely, a poor performing company can be a good investment if its performance at the margin is now suddenly getting better, or say less bad.  Highly successful companies can be a bad medium term stock investment if these are over cherished/valued -this is what is called "a crowded trade", meaning everybody knows so already -and hence its all in the current mkt. price, yes already. (Example TESLA/APPLE, of late).

Banks/Brokers and some others regularly play on the relative un-educated retail investors.  They talk to them for a few minutes and quickly get a sense how much they know/understand, or not.  Most in fact have little understanding as investments is still barely taught in any high-schools, or even Universities. They so then often take advantage of their lack of even basic investor knowledge and gear them towards trading which can be a form of speculating, or funds which can be less then good.  Trading usually results in time in over-trading and so losses, where one sells out ones' good stocks and holds on to the laggards, in time holds a portfolio of losses in the end.  Funds (say mutual funds) can be fee-expensive or even abusive in many different ways, beyond this short article.  Similar most all ETF's just mirror an exchange index, so guarantees average results, hardly a value investing approach.

Best Regards,

Paul A. Renaud.