So, part of my difficulty with stocks is figuring out how much they're worth. I don't necessarily understand the relationship between the price of a share and the worth of a stock.
There are companies that operate at a loss making -.88 earnings per share, but their stock will keep trading higher and higher over a span of time. Other stocks may turn a positive earnings per share but decline in value. So, it's not like the stock is actually correlated to a share of the company's worth.
So, I struggle with people who give me advice to research a stock, read the 10-Ks and financial statements, research the market etc... I can tell what is a generally good business from what is generally not. However, I've seen businesses that I thought were in trouble skyrocket (Guess?) and businesses that I thought were solid plummet (Cloudera).
So my research is more like trying to figure out how much people will be willing to pay for a stock, rather than the actual worth of a company. I kind of treat shares like bitcoin. Bitcoin isn't real money, it's just a share in an intangible idea that we collectively give value to, just like all other money in the fiat system. (I never invested in bitcoin.) But if I bought a share of bitcoin (i.e. one bitcoin) there is no actual product of value being produced, it's just my expectation that others will value my bitcoin at a certain worth. I think it's the same with stocks. A company like a pharmaceutical company can turn negative earnings, but still have their stock increase in value.
So, please, help me understand this idea of stock valuation. When I buy a stock, what am I actually buying?
Submitted April 05, 2018 at 08:28AM by HoyaSaxons https://ift.tt/2uLczbi
