Skip to content
Home » Blog » Distinguish Between Company Performance and Stock Performance

Distinguish Between Company Performance and Stock Performance

Many investors are taught to find good companies and hold their stocks, yet there’s often a disconnect between a company’s financial performance and its stock performance. Profitable companies can have disappointing stock returns and vice versa.

Key Examples

  1. IBM:
  • In 1999, IBM’s stock traded at around $130 per share.
  • By May 2023, it still traded at approximately $130, despite consistent profitability.
  1. S&P 500:
  • The S&P 500 companies have shown profits annually since 1926.
  • Despite this, the index had 26 down years, illustrating the disconnect between company success and stock performance.
  • Historical data shows that during economic downturns, like the Great Depression, the stock market can still perform well. For instance, in 1933, the market was up 56.79% despite high unemployment.

Fundamental Differences Between Companies and Stocks

  • Profit vs. Stock Price:
  • Companies’ success is driven by profits and losses.
  • Stock prices are influenced by supply and demand, driven by investors’ future expectations and emotions, making them volatile and erratic.
  • Liquidity:
  • Buying/selling a business is complex and time-consuming.
  • Trading shares of public companies is quick and easy, affecting their price volatility.

Investment Approach

  • Managing a successful business differs from managing a successful stock portfolio.
  • Investors must leverage liquidity to their advantage and understand market dynamics.
  • Canterbury Investment Management uses “Adaptive Portfolio Management,” a method designed to navigate changing market environments by leveraging stock liquidity and supply-demand dynamics.

Want to know more about stocks? Go to our Resources for Markets New!

Read more about this from this source: Nasdaq

Leave a Reply

Your email address will not be published. Required fields are marked *