Index

Las Vegas on Wall Street

I have to ask an obvious question:  Who really thinks that the stock market valuation of a company really reflects anything like its true value? To put it a little bit less charitably: what does the latest opinion of a bunch of professional gamblers have to do with what the real value of an organization?

From a numerical standpoint, it is really easy to take the current price times the number of shares to get a nice, neat “value” for the company, but what does that number have to do with the anything?  Sure, the bean-counting community finds it convenient to ignore all of those things that they can’t assign numbers to - things like management competence or destructiveness, long-term versus short-term profitability and viability - but does the fact that a small segment of financiers chooses to ignore most of what really makes up a functioning, productive corporation really have anything at all to do with anything but their own egos?

As far as I can tell, the people who set the value of the stocks are completely divorced from the reality of what keeps corporations running.  Companies’ stocks go from high-flyers to crash-and-burn on unsubstantiated rumors - rumors that even if true have little to do with the long-term viability of a company.  Company executives whose pay is tied to stock value know that even if the company goes belly-up next year, this quarter’s results had better look good so that they can keep their golden parachutes.  Next quarter, next year and the next decade can all go hang themselves, because it has to look good this week and this month in order to keep the stock price up.

When does the obvious insanity of this correct itself?