Wall Street is the only market where merchandise is not bought when it is on sale. Fear overtakes common sense.
The stock market does act like a casino from day to day and even week to week. Individual stocks, whole sectors and even the entire market often goes up and down on slight changes in sentiment or outlook. Because the fluctuations take place at the margin. On any given day only a tiny fraction of any company’s shareholders are actually selling their shares.
Stock prices are completely unpredictable from day to day. That’s why day trading is gambling, not intelligent speculation. It’s only over longer periods that the logic of share ownership emerges. Given a decent amount of time, share prices follow earnings. Look back through history and you will not find a single example of a company that increased its earnings quarter after quarter and year after year without the stock tagging along. Likewise, you will not find a single example of a company with consistently lower earnings whose stock continued to rise, even in a rip-roaring bull market.
Understand this and you’ll know what to do with companies whose shares are down despite their favourable outlooks. The only people who should panic in a stock market sell-off are those who shouldn’t be in the market to begin with. The rest, who invested to meet long-term goals and able to buy the dips or at least hang on and reinvest dividends should take a deep breath and stick with the program. Just like successful investors have done in every previous downturn over the last 200 years.
Sven Franssen