Just how baffling can the stock market be to investors? So often the market just does not behave the way investors think it should. Morgan Housel of The Motley Fool provides some data points that can make investor’s heads explode:
Coca-Cola is fighting 12 consecutive years of soda consumption decline. Its stock is at an all-time high.
Tesla is changing the world, and orders for its new car are off the charts. Its stock is lower than it was 18 months ago.
Cigarette consumption has dropped 44% since 1981. Altria stock is up 71,000% since 1981.
WalMart net income has tripled since 2000. Its stock has lost 1.5% since 2000.
Apple has earned almost a quarter trillion dollars of profit since 2012. Its stock has barely budged.
Amazon’s profits round to zero since 2012. Its stock has tripled.
2009 was one of the worst years for the economy in a century. The market rose 27%.
2015 was a good year for the economy. The market rose 1%.
Brazil’s economy is a disaster. Its stock market is flat over the last two years.
America is enjoying the longest streak of low unemployment claims in four decades. Its stock market is also flat over the last two years.
And so on.
Housel sums up the problem:
Outcomes are determined by performance within the context of expectations, with importance heavily weighted toward the latter. And if predicting future performance is hard, calibrating them against expectations is close to sorcery…
…In a world where analysts focus most of their time analyzing performance – what earnings will do, or what the economy will do – and it’s no wonder we struggle to predict outcomes.
This is where many investors simply throw up their hands and give up on finding a logical, organized way to analyze the market. It is also where investors who are introduced to the Point and Figure method of technical analysis “see the light” in the sense that the market gets boiled down to understanding that price is the intersection between supply and demand. The motivation for buying and selling activity may remain elusive, but the imbalance between supply and demand can be seen in the chart. Momentum of the trend of the security can be identified and derived by looking at the relative strength of the security compared to all other securities in the investment universe. With that information, investors can invest in the market as it really is and not as they wish it to be.
