[XBoxBoy]

[quote=davelj]Occasionally, stock prices ARE linked to the underlying fundamentals of the company. The problem, of course, is that this is the exception rather than the rule.

…snip…

as you can see from the performance of US stocks in aggregate over the last 130 years, stocks can spend long periods of time – up to 10 years in some cases – dramatically over- and under-valued.[/quote]

I absolutely agree! With the qualification that I often wonder if we have reached a place of permanently disconnected stock prices. Seems to me stock prices left fundamentals sometime in the early ’90’s and haven’t been there since. Are they ever going to return to being based on fundamentals? Not sure which way I’d vote on that.

[quote=davelj][quote=XBoxBoy]
Typically, when a company buys another company and then lays off a bunch of workers, that stock will bounce. [/quote]

This is incorrect. Typically when one company buys another – regardless of proposed “synergies” – the acquirer’s stock goes down. This occurs in at least 80% of cases and there are reams of academic studies supporting this.

…snip…

OCCASIONALLY, the stock of the acquirer will go up when a merger or acquisition is announced. But this is the exception rather than the rule.[/quote]

Dave, I don’t know how often this happens, and you could easily be right that it’s only 20% of the time whereas 80% of the time the aquiring companies stock goes down. I don’t watch many individual stocks, only those in my industry, video games. From what I see, it is common for a publisher’s stock to bounce up when they buy a developer. The joke of this is that usually three or four years later the publisher closes the developer, having gotten nothing out of them but having successfully run the developer into the ground.

I think the interesting question would be, given that sometimes the acquiring companies stock goes up and sometimes it goes down, what percent of the time is this movement a good predictor of the success of the merger? In other words, does that stock price movement correlate to the actual improvement or deterioration in acquiring company fundamentals? My hunch is that there is very little correlation, and that this is another example of stock prices not being based on the businesses fundamentals but instead based on the perceptions of traders.

XBoxBoy

[XBoxBoy]

[quote=davelj]Occasionally, stock prices ARE linked to the underlying fundamentals of the company. The problem, of course, is that this is the exception rather than the rule.

…snip…

as you can see from the performance of US stocks in aggregate over the last 130 years, stocks can spend long periods of time – up to 10 years in some cases – dramatically over- and under-valued.[/quote]

I absolutely agree! With the qualification that I often wonder if we have reached a place of permanently disconnected stock prices. Seems to me stock prices left fundamentals sometime in the early ’90’s and haven’t been there since. Are they ever going to return to being based on fundamentals? Not sure which way I’d vote on that.

[quote=davelj][quote=XBoxBoy]
Typically, when a company buys another company and then lays off a bunch of workers, that stock will bounce. [/quote]

This is incorrect. Typically when one company buys another – regardless of proposed “synergies” – the acquirer’s stock goes down. This occurs in at least 80% of cases and there are reams of academic studies supporting this.

…snip…

OCCASIONALLY, the stock of the acquirer will go up when a merger or acquisition is announced. But this is the exception rather than the rule.[/quote]

Dave, I don’t know how often this happens, and you could easily be right that it’s only 20% of the time whereas 80% of the time the aquiring companies stock goes down. I don’t watch many individual stocks, only those in my industry, video games. From what I see, it is common for a publisher’s stock to bounce up when they buy a developer. The joke of this is that usually three or four years later the publisher closes the developer, having gotten nothing out of them but having successfully run the developer into the ground.

I think the interesting question would be, given that sometimes the acquiring companies stock goes up and sometimes it goes down, what percent of the time is this movement a good predictor of the success of the merger? In other words, does that stock price movement correlate to the actual improvement or deterioration in acquiring company fundamentals? My hunch is that there is very little correlation, and that this is another example of stock prices not being based on the businesses fundamentals but instead based on the perceptions of traders.

XBoxBoy

[XBoxBoy]

[quote=davelj]Occasionally, stock prices ARE linked to the underlying fundamentals of the company. The problem, of course, is that this is the exception rather than the rule.

…snip…

as you can see from the performance of US stocks in aggregate over the last 130 years, stocks can spend long periods of time – up to 10 years in some cases – dramatically over- and under-valued.[/quote]

I absolutely agree! With the qualification that I often wonder if we have reached a place of permanently disconnected stock prices. Seems to me stock prices left fundamentals sometime in the early ’90’s and haven’t been there since. Are they ever going to return to being based on fundamentals? Not sure which way I’d vote on that.

[quote=davelj][quote=XBoxBoy]
Typically, when a company buys another company and then lays off a bunch of workers, that stock will bounce. [/quote]

This is incorrect. Typically when one company buys another – regardless of proposed “synergies” – the acquirer’s stock goes down. This occurs in at least 80% of cases and there are reams of academic studies supporting this.

…snip…

OCCASIONALLY, the stock of the acquirer will go up when a merger or acquisition is announced. But this is the exception rather than the rule.[/quote]

Dave, I don’t know how often this happens, and you could easily be right that it’s only 20% of the time whereas 80% of the time the aquiring companies stock goes down. I don’t watch many individual stocks, only those in my industry, video games. From what I see, it is common for a publisher’s stock to bounce up when they buy a developer. The joke of this is that usually three or four years later the publisher closes the developer, having gotten nothing out of them but having successfully run the developer into the ground.

I think the interesting question would be, given that sometimes the acquiring companies stock goes up and sometimes it goes down, what percent of the time is this movement a good predictor of the success of the merger? In other words, does that stock price movement correlate to the actual improvement or deterioration in acquiring company fundamentals? My hunch is that there is very little correlation, and that this is another example of stock prices not being based on the businesses fundamentals but instead based on the perceptions of traders.

XBoxBoy

[XBoxBoy]

[quote=Nor-LA-SD-guy]I can’t see why anyone would attempt to flip the higher end homes these day’s,[/quote]

Your views clearly didn’t influence the buyer that bought and is now trying to flip this place:

http://www.sdlookup.com/MLS-100002302-6467_Avenida_Manana_La_Jolla_CA_92037

Should be interesting to see how this turns out…

[XBoxBoy]

[quote=Nor-LA-SD-guy]I can’t see why anyone would attempt to flip the higher end homes these day’s,[/quote]

Your views clearly didn’t influence the buyer that bought and is now trying to flip this place:

http://www.sdlookup.com/MLS-100002302-6467_Avenida_Manana_La_Jolla_CA_92037

Should be interesting to see how this turns out…

[XBoxBoy]

[quote=Nor-LA-SD-guy]I can’t see why anyone would attempt to flip the higher end homes these day’s,[/quote]

Your views clearly didn’t influence the buyer that bought and is now trying to flip this place:

http://www.sdlookup.com/MLS-100002302-6467_Avenida_Manana_La_Jolla_CA_92037

Should be interesting to see how this turns out…

[XBoxBoy]

[quote=Nor-LA-SD-guy]I can’t see why anyone would attempt to flip the higher end homes these day’s,[/quote]

Your views clearly didn’t influence the buyer that bought and is now trying to flip this place:

http://www.sdlookup.com/MLS-100002302-6467_Avenida_Manana_La_Jolla_CA_92037

Should be interesting to see how this turns out…

[XBoxBoy]

[quote=Nor-LA-SD-guy]I can’t see why anyone would attempt to flip the higher end homes these day’s,[/quote]

Your views clearly didn’t influence the buyer that bought and is now trying to flip this place:

http://www.sdlookup.com/MLS-100002302-6467_Avenida_Manana_La_Jolla_CA_92037

Should be interesting to see how this turns out…

[XBoxBoy]

[quote=DataAgent]When Company A buys Company B, people costs are reduced ie. no need for two accounting depts. This cost reduction usually results in increased profit. And increased profit will usually increase share price.[/quote]

DataAgent, I totally agree that this is the widely held view that explains the stock rise. However, the irony here is that there are many many cases where merging companies and slashing jobs ended up destroying value rather than increasing efficiency and increasing profits. More evidence that stock prices are NOT based on company fundamentals but based on beliefs of traders.

XBoxBoy

[XBoxBoy]

[quote=DataAgent]When Company A buys Company B, people costs are reduced ie. no need for two accounting depts. This cost reduction usually results in increased profit. And increased profit will usually increase share price.[/quote]

DataAgent, I totally agree that this is the widely held view that explains the stock rise. However, the irony here is that there are many many cases where merging companies and slashing jobs ended up destroying value rather than increasing efficiency and increasing profits. More evidence that stock prices are NOT based on company fundamentals but based on beliefs of traders.

XBoxBoy

[XBoxBoy]

[quote=DataAgent]When Company A buys Company B, people costs are reduced ie. no need for two accounting depts. This cost reduction usually results in increased profit. And increased profit will usually increase share price.[/quote]

DataAgent, I totally agree that this is the widely held view that explains the stock rise. However, the irony here is that there are many many cases where merging companies and slashing jobs ended up destroying value rather than increasing efficiency and increasing profits. More evidence that stock prices are NOT based on company fundamentals but based on beliefs of traders.

XBoxBoy

[XBoxBoy]

[quote=DataAgent]When Company A buys Company B, people costs are reduced ie. no need for two accounting depts. This cost reduction usually results in increased profit. And increased profit will usually increase share price.[/quote]

DataAgent, I totally agree that this is the widely held view that explains the stock rise. However, the irony here is that there are many many cases where merging companies and slashing jobs ended up destroying value rather than increasing efficiency and increasing profits. More evidence that stock prices are NOT based on company fundamentals but based on beliefs of traders.

XBoxBoy

[XBoxBoy]

[quote=DataAgent]When Company A buys Company B, people costs are reduced ie. no need for two accounting depts. This cost reduction usually results in increased profit. And increased profit will usually increase share price.[/quote]

DataAgent, I totally agree that this is the widely held view that explains the stock rise. However, the irony here is that there are many many cases where merging companies and slashing jobs ended up destroying value rather than increasing efficiency and increasing profits. More evidence that stock prices are NOT based on company fundamentals but based on beliefs of traders.

XBoxBoy

[XBoxBoy]

Threadkiller, you seem to be suffering from the misconception that prices of stocks are linked to the underlying fundamentals of the company. While that may seem like a reasonable idea, it just isn’t so. And before you venture into the world of wall street trading I highly recommend that you get past this line of thinking.

Stock prices instead are based on what traders think other traders will pay for the stock in the near future. Typically, when a company buys another company and then lays off a bunch of workers, that stock will bounce. I’ll leave it to others to argue if this makes business sense or not, but to me it doesn’t matter. This is what is routine and so this is what happens.

XBoxBoy

[XBoxBoy]

Threadkiller, you seem to be suffering from the misconception that prices of stocks are linked to the underlying fundamentals of the company. While that may seem like a reasonable idea, it just isn’t so. And before you venture into the world of wall street trading I highly recommend that you get past this line of thinking.

Stock prices instead are based on what traders think other traders will pay for the stock in the near future. Typically, when a company buys another company and then lays off a bunch of workers, that stock will bounce. I’ll leave it to others to argue if this makes business sense or not, but to me it doesn’t matter. This is what is routine and so this is what happens.

XBoxBoy

[Author]

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