Savage Beatings Posted October 27, 2011 Share Posted October 27, 2011 Serious question - how much of this dishonesty and "greed" is driven from outside? Something I saw this morning made me think about this yet again. 3M, headquartered here in the Twin Cities, failed to reach Wall Street analyst expectations even though 3M did record a profit. The share price instantly dropped 6.5% even though, again, the company recorded a decent profit. This is seen over and over again. Some anonymous jerk on Wall Street sets an expectation and if it isn't hit, the company is punished way out of proportion to it's so-called failure. Isn't this "system" an encouragement to cut corners, only take note of the short term and do whatever it takes to get there? Doesn't it also encourage extreme volatility instead of the pursuit of steady growth? No company is forced to trade publicly. But if they do, then the trade-off of bringing in a bunch of capital is that often times they have to focus on short term gains at the expense of long term growth. Privately held comnpanies don't have to make that Faustian bargain. You can't force investors to purchase or to not sell when they want to... and I don't think it is ever done as a punishment... it is invididuals making decisions for themselves based upon the latest data. If someone is manipulating that data for a desired outcome, then that's a different story. Quote Link to comment Share on other sites More sharing options...
wiegie Posted October 27, 2011 Share Posted October 27, 2011 no, there was not. but ... so what? this was Ursa's initial point This is seen over and over again. Some anonymous jerk on Wall Street sets an expectation and if it isn't hit, the company is punished way out of proportion to it's so-called failure. Isn't this "system" an encouragement to cut corners, only take note of the short term and do whatever it takes to get there? Doesn't it also encourage extreme volatility instead of the pursuit of steady growth? his questions remain unanswered there answer might be "no" to both of his questions, but the fact that 3M's stock jumped back up today suggests there could easily be more volatilty than is warranted by changes in the fundamentals that's all I was saying Quote Link to comment Share on other sites More sharing options...
Azazello1313 Posted October 27, 2011 Author Share Posted October 27, 2011 No company is forced to trade publicly. But if they do, then the trade-off of bringing in a bunch of capital is that often times they have to focus on short term gains at the expense of long term growth. Privately held comnpanies don't have to make that Faustian bargain. this is not necessarily true. stock price reflects long term prognosis to the extent that is knowable and foreseeable. I don't know enough about how stock analysts set their targets and expectations to make any comment about whether that process if "fair" or effective (though somehow I am guessing ursa doesn't know enough to make an informed comment on that, either). but theoretically, meeting those benchmarks or failing to do so could provide an indication whether actions taken over that quarter or year or whatever are producing the hoped-for effect. such indications would be relevant to the long term growth as well as short term gains. it's something wiegie says all the time, that no individual is consistently smarter than the market. Quote Link to comment Share on other sites More sharing options...
Azazello1313 Posted October 27, 2011 Author Share Posted October 27, 2011 there answer might be "no" to both of his questions, but the fact that 3M's stock jumped back up today suggests there could easily be more volatilty than is warranted by changes in the fundamentals that's all I was saying right, there was a sell-off based on concerning performance yesterday, then people seeing a buying opportunity at a value this morning. I fail to see how this is remarkable or especially troubling. Quote Link to comment Share on other sites More sharing options...
Ursa Majoris Posted October 27, 2011 Share Posted October 27, 2011 no, there was not. but ... so what? welcome to the stock market, where short term volatility exists. am i really explaining this to an economist?!? do people try to play this short term volatility? yes. some win, some lose. it is a dangerous game. are companies held to strict disclosure laws and requirements to share their financial position? yes. we have plenty of data as investors to make decisions. are the analysts doing their job to try and provide another layer of information to help investors? yes. are we all adults and able to make our own decisions with how we invest our money? yes. is there impropriety, dishonesty, misleading, non-complete-total-honesty, etc. etc. out there in the analyst community? sure, but those who do not provide good information over time end up out of work. do they try to create hype to influence/move the market? they may try, but again, good luck. you take the good with the bad in any system and in this one, the good far outweighs the bad. I think there's a case to be made that short term-ism has long since gained the upper hand over long term-ism and that bodes ill for the vast majority of investors. It becomes an important point when one considers that, like it or not, we aren't talking about a few rich guys betting on stocks any more, we are talking about half the population being invested in one way or another. I actually think there is a ton of potential to solve the Social Security issue by relying on long term investments and that was true through about 1995 or so but since then there has been a sea change in the way the market works, such that those people who support pensions over 401ks have been given ammunition for their POV. I'd also point out that individual decisions by professional investors are receding now in the face of automated software. Yet another contributory element to volatility. The market is yet another system where the people involved in it daily are just a small element of the overall picture. Quote Link to comment Share on other sites More sharing options...
tonorator Posted October 27, 2011 Share Posted October 27, 2011 I think there's a case to be made that short term-ism has long since gained the upper hand over long term-ism and that bodes ill for the vast majority of investors. don't see it. i believe it is still true that if a company performs, the shareholder is rewarded over time. not trying to time the market to boost your gains is wisdom that has been with us for decades. separate from this are certainly changing market conditions that impact a company's ability to perform ... It becomes an important point when one considers that, like it or not, we aren't talking about a few rich guys betting on stocks any more, we are talking about half the population being invested in one way or another. more people invested is a wonderful thing ... but as always, buyer beware. I actually think there is a ton of potential to solve the Social Security issue by relying on long term investments and that was true through about 1995 or so but since then there has been a sea change in the way the market works, such that those people who support pensions over 401ks have been given ammunition for their POV. i do not argue with this from a SS standpoint. we should either solidify SS as is, so keep it, fund it, protect it, improve it ... or we should kill it altogether. one or the other, but NOT taking it into the stock market. imo, there's just too many conflicting dynamics created as a result. and for the record, i believe we should keep it, and strengthen it. I'd also point out that individual decisions by professional investors are receding now in the face of automated software. Yet another contributory element to volatility. The market is yet another system where the people involved in it daily are just a small element of the overall picture. i guess so but to say that the individual investor cannot profit and profit handsomely is just not true. my apple bought at $40/share and GE at $9/share are living examples ... good companies will reward over time, even if they have some short term gymnastics. Quote Link to comment Share on other sites More sharing options...
westvirginia Posted October 31, 2011 Share Posted October 31, 2011 this was Ursa's initial pointhis questions remain unanswered there answer might be "no" to both of his questions, but the fact that 3M's stock jumped back up today suggests there could easily be more volatilty than is warranted by changes in the fundamentals that's all I was saying You are intentionally being dense here because you KNOW the answer to this. 3M's stock price was at a level with the expectation profits would be $x/share. When that wasn't met, the stock dropped, probably more than it should have because those who lagged in selling had to take a bigger price cut to unload. For all of you that love "democracy", this is EXACTLY what democracy is - a herd of nervous cattle with a lightning storm always brewing on the horizon. The stock market is the truest form of democracy there is on this planet - where each participant has votes according to shares and can create this "volatility". Just something I thought worth mentioning. And ursa, as to your worrying about rules being set up to benefit a few at the expense of many - you're exactly right. I just wish you had as much of a hard-on for this when it comes to things like 47% of people paying no income tax, or making the many pay for things that benefit so few (like when the feds take our money and dole it back to pay for a bridge or a park) just to buy votes. It's the same damn principle. Quote Link to comment Share on other sites More sharing options...
Ursa Majoris Posted October 31, 2011 Share Posted October 31, 2011 You are intentionally being dense here because you KNOW the answer to this. 3M's stock price was at a level with the expectation profits would be $x/share. When that wasn't met, the stock dropped, probably more than it should have because those who lagged in selling had to take a bigger price cut to unload. For all of you that love "democracy", this is EXACTLY what democracy is - a herd of nervous cattle with a lightning storm always brewing on the horizon. The stock market is the truest form of democracy there is on this planet - where each participant has votes according to shares and can create this "volatility". Just something I thought worth mentioning. And ursa, as to your worrying about rules being set up to benefit a few at the expense of many - you're exactly right. I just wish you had as much of a hard-on for this when it comes to things like 47% of people paying no income tax, or making the many pay for things that benefit so few (like when the feds take our money and dole it back to pay for a bridge or a park) just to buy votes. It's the same damn principle. It wasn't to do with profits / share. It was to do with two of their divisions not reaching some target set for them by Wall Street "analysts". Your definition of the stock market as a democracy is so incorrect it is difficult to credit. Democracy is not apportioned according to shares. That is a definition of plutocracy, an end state that seems to be very attractive to all the forelock tugging nutsack leeches of all forms of wealth. Lastly, if you can't understand that things like bridges and parks don't - and cannot - necessarily directly benefit everyone who pays for them, then there's no hope for you. If everything was only paid for by those directly benefiting, there would be nothing. It isn't even remotely close to the same principle. Quote Link to comment Share on other sites More sharing options...
WaterMan Posted October 31, 2011 Share Posted October 31, 2011 (edited) (written for a religious publication by a professor of economics) I'm going to skip reading this as it sounds biased from the start. Edited October 31, 2011 by WaterMan Quote Link to comment Share on other sites More sharing options...
Azazello1313 Posted October 31, 2011 Author Share Posted October 31, 2011 I'm going to skip reading this as it sounds biased from the start. good idea, it's a little "grown-up" for you anyhow. Quote Link to comment Share on other sites More sharing options...
westvirginia Posted October 31, 2011 Share Posted October 31, 2011 It wasn't to do with profits / share. It was to do with two of their divisions not reaching some target set for them by Wall Street "analysts". Your definition of the stock market as a democracy is so incorrect it is difficult to credit. Democracy is not apportioned according to shares. That is a definition of plutocracy, an end state that seems to be very attractive to all the forelock tugging nutsack leeches of all forms of wealth. Lastly, if you can't understand that things like bridges and parks don't - and cannot - necessarily directly benefit everyone who pays for them, then there's no hope for you. If everything was only paid for by those directly benefiting, there would be nothing. It isn't even remotely close to the same principle. It is most certainly about profits. The "analysts" you speak of expect $X earnings/share. That expectation gets reflected as an increase in the stock price. When that increase is seen to be unfounded, the stock price drops, then adjusts over a day or two (as has been described by down 6% one day then up 3% the next) back to equilibrium for the new EPS. Wiegie knows this as sure as he knows cigarettes are a form of M1 in prison. And the point of my democracy analogy is - everybody gets a vote according to their whims - and what scares them at the moment. Oh I know that bridges and parks won't benefit everyone who pays for them. But why do folks in one state have to send money to the feds so that folks in another state can enjoy a bridge or park? Wouldn't it be better if the feds never took that money in the first place so the states could handle that themselves? Ahh, but then your politicians wouldn't have that money to buy votes with... Quote Link to comment Share on other sites More sharing options...
Ursa Majoris Posted October 31, 2011 Share Posted October 31, 2011 But why do folks in one state have to send money to the feds so that folks in another state can enjoy a bridge or park? Wouldn't it be better if the feds never took that money in the first place so the states could handle that themselves? Ahh, but then your politicians wouldn't have that money to buy votes with... You'd be very hard pressed to find a Republican politician who would agree to that, except possibly one from Texas. You know why. Quote Link to comment Share on other sites More sharing options...
Pope Flick Posted October 31, 2011 Share Posted October 31, 2011 You'd be very hard pressed to find a Republican politician who would agree to that, except possibly one from Texas. You know why. But keeping large swaths of the country on the level of a 3rd world country, Montanalia, anyone? Sounds like such a fetching idea! Quote Link to comment Share on other sites More sharing options...
WaterMan Posted October 31, 2011 Share Posted October 31, 2011 good idea, it's a little "grown-up" for you anyhow. Without me reading, did Pat Robertson or Bob Jones pay for this to be written? Quote Link to comment Share on other sites More sharing options...
westvirginia Posted November 5, 2011 Share Posted November 5, 2011 You'd be very hard pressed to find a Republican politician who would agree to that, except possibly one from Texas. You know why. And why the heck do you think I support libertarians and fair taxers? Look, this money going to gov't is like the "war on (some) drugs". It's a DEMAND side problem. The ONLY way to address it is to take away these idiots power to decide who the winners and losers are. Like az said in another thread, (props to PJ O'Rourke) "When legislators control buying and selling the first things to be bought and sold are legislators." They have all this power to create or destroy. It HAS to be taken away from them. Why do you think we have the spending problem we have now? Quote Link to comment Share on other sites More sharing options...
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