Читать книгу Millionaire Expat - Andrew Hallam - Страница 19

Choosing a company to invest in isn't easy, even if you think you can predict its business earnings. Over the long term, stock price increases correlate directly with business earnings. But over a short period of time (and 10 years is considered a stock market blip), anything can happen. This is why the famous money manager Kenneth Fisher refers to the stock market as the Great Humiliator.⁷ Over a handful of years, a company's business profits can grow by 8 percent per year, while the stock price stagnates. Or business earnings could limp along at 4 percent per year, while the stock market pushes the share price along by 13 percent.

Such a disconnection never lasts. Ultimately, a company's stock price growth will mirror its business' profit growth. If a stock's price appreciation outpaces business earnings, the stock price will either flatline or fall until it realigns with business earnings.

If business profit growth exceeds the stock's appreciation, at some point the stock will dramatically rise, realigning share price growth with that of business profits.

Connections between stock and business profits correlate strongly over long time periods—15 years or more. But over shorter periods, markets are mad because people are crazy.

Those trying to buy individual stocks need to forecast two things: future business earnings and people's reactions to those business earnings. For example, if financial analysts and the general investment public felt that Google's business earnings would grow by 15 percent next year, and the company's earnings grew by 13 percent instead, many shareholders would sell. No, I'm not suggesting such a move would be rational. It wouldn't be. But people aren't rational. Such selling would drop Google's share price, despite the impressive 13 percent business growth rate.

Predicting the general direction of the stock market is just as difficult. Even with a solid eye on the economy, human sentiment moves stock prices in the short term, not government policies or economic data. The existence of more buyers than sellers increases demand, so stock prices rise. Having more sellers than buyers increases supply, so prices fall. That's it—nothing more, nothing less. The stock market isn't its own entity, moving up and down like some kind of mystical scepter. Instead, its movements are a short‐term manifestation of what people do. Are they buying or are they selling? We move stock prices: the aggregate activities of you, global institutional investors, and me. Our groupthink is so unpredictable that most economists can't determine the market's direction. To do so accurately, they would have to predict human behavior. And they can't.

For example, imagine if every US economist were rounded up on January 1, 2020, to listen to a creepy soothsayer in a cave. “The world will face a global pandemic in 2020,” utters the cloaked, eyeless figure, as spit flies from his mouth onto the cold wet walls. “The US economy will shrink by 3.5 percent.”

This happened in 2020 (except the soothsayer dude is fiction).⁸

But even if such a soothsayer really told economists this, they would never have predicted that the US stock market would soar 20.96 percent in 2020.

However, over the long term, there's always a direct correlation between business earnings and stock prices. Warren Buffett's former Columbia University professor, Benjamin Graham, referred to the stock market as a short‐term voting machine or popularity contest, but a long‐term weighing machine.⁹ Business earnings and stock price growth are two separate things. But in the long term, they tend to reflect the same result. For example, if a business grew its profits by 1,000 percent over a 30‐year period, the stock price, including dividends, would perform similarly.

It's the same for a stock market in general. If the average company within a stock market grows by 1,000 percent over 30 years (that's 8.32 percent annually), the stock market would reflect such growth.

Over the long term, stock markets predictably reflect the fortunes of the businesses within them. But over shorter time periods, the stock market is nuts.