Unfortunately, they haven't been regarded as having anything to do with the underlying business for some time now. A long enough bear market will cure that.
I absolutely agree with the first sentence, but cannot understand how a bear market will magically cure the disease. You are back to that intrinsic worth model. Consider that when a business is purchased, many intangibles contribute to the actual selling price, true due diligence may uncover factors that couldn't possibly be considered in the price. In fact, these days share price often offers only an order of magnitude estimate of what to expect when the business actually goes on the block. The volatility of ownership introduces an overwhelming amount of noise in the price...20 % drops on news that affect 2 percent of the bottom line and so forth. Stock ownership is now so temporary now that any ripples in the tide have more to do with value than long term prospects. But just like matter, and the uncertainty principle, it's the view from 20,000 feet from which you can measure direction .
So, in your view it's now going on eight years since the market price and its "fair" value were on the same planet. How does your model enforce adherence to reality? Will these two opposites ever attract? And if they make up, how long will they linger in each other's company? Even if I gaze into your world, it seems that a balanced market price remains about as fleeting as the call of the 17 year locust.
In fact, the dichotomy between the view of shares representing ownership (and responsibility!?) and the greater fool theory is a direct by-product of the trend to dramatically reduce capital gains tax (and even the definition of the same). The trend also led to the development of an itinerant executive class who now control most of the major corporation. They expect and get a high tithe regardless of performance.
Once there was a time when investors looked for management to grow equity by developing products, now investors and management alike act like the character “Morrie in the movie Goodfellas ("Jimmy...I want my money now")
I find it curious that you...then advance arguments that nobody on Wall Street will agree with. Everybody in finance and most economists..
This is most high praise. Perhaps you've guessed that I was trained as a scientist, not an alchemist. |
