From the ADO forum: Source: Time Magazine, U.S. Edition Author:...

From the ADO forum:

Source: Time Magazine, U.S. Edition
Author: Rana Foroodar
Article Title: "The Market Mirage - What stock prices do--and don't--tell us about the actual value of a company"
Date: 06 April 2015 Edition

Excerpt:
"One of the hardest-dying ideas in economics is that stock price accurately reflects the fundamental value of a given firm. It’s easy to understand why this misunderstanding persists: price equals value is a simple idea in a complex world. But the truth is that the value of firms in the market and their value within the real economy are, as often as not, disconnected. In fact, the Street regularly punishes firms hardest when they are making the decisions that most enhance their real economic value, causing their stock price to sink."

"There are thousands of examples I could cite, but here’s a particularly striking one: the price of Apple stock fell roughly 25% the year it introduced the iPod. The technology that would kick-start the greatest corporate turnaround in the history of capitalism initially disappointed, selling only 400,000 units in its debut year, and the company’s stock reflected that. Thankfully, Steve Jobs didn’t give a fig. He stuck with the idea, and today nine Apple iDevices are sold somewhere in the world every second."

"This story illustrates the truth: Stock prices are usually short-term distractions, while true value is built up over time. According to McKinsey, 70% to 90% of a company’s value is related to its likely cash flow three or more years from the present. That makes sense–making money from new inventions takes time. Yet Wall Street analysts, whose opinions help set stock prices, typically base their assessments of a firm on one-year cash-flow projections. What’s more, like all individuals, they have their biases; during boom periods, they tend to believe that corporate earnings will be higher than during bear markets, regardless of the underlying corporate story."

Precisely!