Hi Everyone,As we head into April, a month typically kind to equity markets, I have found many articles discussing the valuation of companies as it relates to their stock price. Rana Foroohar’s from Time this week was most interesting.
Here you go,
Stock Prices and True Value“One of the hardest-dying ideas in economics is that stock price accurately reflects the fundamental value of a given firm. It’s easy to understand why this misunderstanding persists: price equals value is a simple idea in a complex world. But the truth is that the value of firms in the market and their value in the real economy are, as often as not, disconnected. In fact, the Street regularly punishes firms hardest when they are making the decisions that most enhance their real economic value, causing their stock price to sink.
There are thousands of examples I could cite, but here’s a particularly striking one: the price of Apple stock fell roughly 25% the year it introduced the iPod. The technology that would kick-start the greatest corporate turnaround in the history of capitalism initially disappointed, selling only 400,000 units in its debut year, and the company’s stock price reflected that. Thankfully, Steve Jobs didn’t give a fig. He stuck with the idea, and today nine Apple iDevices are sold somewhere in the world every second.”
While having lunch at Houston’s one day, I met Bob. We were reading the same magazine, Mental Floss. He also had a copy of The Week.
The Week has quickly become my favorite magazine. It’s fun and concise – basically perfect. Check it out if you can.
Let me know if you have any questions or need any additional resources. Until next week, Susan R. Linkous The Linkous Group, Ltd. A Registered Investment Advisor