Fool.com: Sex, Lies, and Ticker Tape [Commentary] December 15, 2004
Article about what makes stocks go up and down in the short term. There is a long standing stat that every summer the stock market does nothing and every winter the stock market rallys. While I am well aware of the dangers of using this causality vs. causation, I would love to take the earnings and dividends for companies for the past hundred years in 6-month chunks (similar to the season changes) and see if there is a correlation between ups and downs in those measures and the stock price that is stronger than the one you see here for the seasons. The stock price is supposed to represent the value of the underlying company but, much in the way a $120 pair of Nikes is not significantly more valuable than a $20 pair of Arizona sneakers without society to apply that value, I question whether or not it is all just a self-fulfilling prophecy. Because the total amount of people who actually hang onto stocks long enough to realize the amount they paid for the stock in dividends or dispersals (after the company breaks up for example) is vanishingly small, using this as the way of measuring underlying value seems to be almost arbitrary. Yes if you DID hold onto it for that long, it WOULD pay you x, but you’re not going to so why not value it on what it will do for you in the next 6 years (or however long you’d like to hold onto it). It is like befriending someone because you think they’ll give you money and leave you in their will when they die. I anxiously await the economists to chime in on how I’ve gotten this very very wrong.