Jesse Eisinger, in this month's (well, next month's)(I cannot, for the life of me figure out the magazine month rules)(It's the October issue, whatever that means) Conde Nast Portfolio, writes about something I've never really thought about before.
http://tinyurl.com/52o477
My employer's stock is, as of Friday's close, selling at $23.01 per share. During the day Friday, it ranged from $22 to nearly $29.
Now, did anything really happen to change the value of my company during that time? Did inventories rise? Shrink? Employees quit? Employees get hired? Equipment break? Get fixed? Get bought?
Of course, all of those things happened, to some small degree. But is any of that activity really reflected in the stock price? That information is just barely available to the company itself, certainly it isn't available to the stock market yet, right?
In other words, all that trading was driven on speculation, rumor mongering, madness, and gambling. In 2007, according to Eisinger, the turnover of the NYSE was 215%.
It is a linchpin of the financial world that the stock market determines the value of the company-as Bill Parcells used to tell us, you are what you are, and in finance, you are what the stockholders say you are-after all, they, in some sense, own the place.
But if nobody holds shares long term-according to Eisinger, Morningstar ( a mutual fund) turns over at the arte of 93 % per year, and a study shows that even activist shareholders hold shares for a median period of one year-what does that statement mean any more?
How do you please shareholders if they're constantly in and out?
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