We say "often" because the stock market can be a very noisy place from time to time. We've observed stock prices diverge from where their expected future dividends per share would place them. These deviations are driven by what we've come to call "noise events", which are things to which investors react, such as news, that have little effect upon the fundamentals underlying the market.
As we've seen, news-driven noise events tend to be very short-lived and stock prices soon resume following the signal being sent by their dividends per share, most often within a day or days, as the impact of the news affecting stock prices fades with the onset of other news or more significant changes in the outlook for the market. No matter what, all noise events end - it's only ever a matter of when.
However, some noise events have much longer durations and have much bigger impact on stock prices than what might be called ordinary news-driven noise events.
Political Calculations is a site that develops, applies and presents both established and cutting edge theory to the topics of investing, business and economics.
Be the first to read Political Calculation's column. Sign up today and receive Townhall.com delivered each morning to your inbox.
NEW TIME Today, at 9:30 AM PT: Get the Market Movements in Advance; Williams Edge Webinar for January 26th, 2014 | John Ransom