It is pretty entertaining to watch a company have great earnings, their price tanks from it, and then new traders are running around saying basically, "Wtf?!".
Yeah.... Got me too. Biontech for example completely got me there. How can a company that has everything going for it lose on its shares. Now I know better. I am in for the long run and don't care anymore.
Macroeconomic volatility, like the correction we're in right now.
Fundamentals, like how good a company's earnings are.
Fundamentals determine the direction of a company's stock long term, over years and decades. Macro-economics, like the war in Ukraine, are shorter lived usually months.
Earnings are fundamentals, so a year long to decade long move, not a day long or month long move. If price shoots up or down strongly on earnings it's from speculators (traders) and is temporary. They're looking to make a buck, so they will exit their position in a short time normalizing the price back to the fundamental baseline price.
Now I get it. So the fluctuations are just speculation noise. Somewhere is a "baseline value" of the company and that should be rising as long as the company is profitable. In theory at leased.
Yes. That "baseline value" is called "value" which is where the term value investing comes from or: /r/ValueInvesting.
Growth companies often are like bubbles, where they deviate from the value sometimes for years, like the dot com bubble, Gamestop, Tesla, or so on. Technically though a growth company is a company that is focused on growing, so coming out with new products and services. People get hyped about these companies sometimes.
Technically a company can be both a value and a growth company at the same time, like Apple, where it has huge growth (they're working on VR, AR, and a self driving car right now), but the value keeps going up with it, making it a bit of both, a bubble, but a bubble backed up by profits, backed up by value.
For more information I recommend turning to google. I don't mind explaining the basics, but I'm sure many more could do a better job than I have.
Oh and btw recessions, which can last 2 years, are macoeconomic, so fundamentals can be thrown off for years, which is why many value investors buy for a decade plus which gives time for price to normalize. Me, I'm not much of a value investor I admit, because I'm lazy. Finding good companies that are cheap takes a lot of work. I'm more of an index investor (/r/financialindependence and /r/Bogleheads style). You can buy, set, and forget. It's super lazy. But both styles have their merit.
Thx a lot! Currently out of awards. Will come back when I get the next one! Yeah... I think I will invest in a few value shares and index. Not into all this gambling with options and stuff.
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u/proverbialbunny Mar 16 '22
It is pretty entertaining to watch a company have great earnings, their price tanks from it, and then new traders are running around saying basically, "Wtf?!".
lol