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Unless you are sitting on the board of directors of a company or have the CEO whispering in your ear, you really aren't privy to all the details that are relevant to a company's current condition and future prospects and how this information may affect its stock price. Even then, as we all know, a company's actual condition may not be accurately reflected in its stock price, which is simply its perceived relative value at any given time. |
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A company may have stellar earnings, solid fundamentals, technical indicators looking good, great prospects, and a CEO who knows how to charm the pants off the analysts and the press. And yet still the company may be out of favor with traders and investors for no apparent reason. |
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This is where my dictum, mind moves the market helps make sense of what is at first glance tough to comprehend. If the way people interpret all the data about a company is not in line with the actual facts, you have a discrepancy that shows up in the stock price. Sometimes, all the good things about a stock are already priced into it. Then the least perception that the company is not outdoing itself each quarter leads to a sell-off. |
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Dell is perhaps the best example of this. The company was growing at such an astounding rate that when it began to cool off just a little, the stock got hit hard. Nothing had changed with the fundamentals of the company. In fact, it continued to gain more market share. The company's prospects looked bright. But the expectations had become very high to justify the high premium attached to the stock. When it beat, but did not "blow out" its earnings number for a couple of quarters, the sell-off was severe. |
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So many variables related to the market are out of our control. Because of this, it is important for us to be truthful to ourselves, since our own emotions, thoughts, and motives are at least one domain of the investment game that we may know and within which we may exert a measure of self-control. We'll talk more about self-control later in Chapter 7. |
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Why an Increase in Greed? |
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The bull market of the last decade is certainly partially responsible for an increase in greedy thinking and behavior. We watch others make a lot of quick money on high-tech stocks like Dell, Cisco, and Intel by being in at the right time. |
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