What drives stock prices? It may surprise you
NOTE :
SOMETHING KNSC MANAGEMENT IS TRYING TO DO HERE!!
John Reese is founder and CEO of Validea.com and Validea Capital Management, and portfolio manager for the Omega American & International Consensus funds.
Back on July 22, Morgan Stanley announced dreadful second-quarter 2009 results. Earnings per share were negative for the fourth straight quarter, and revenues were less than half of what they were a year earlier.
That same day, Apple posted glowing second-quarter results, with earnings jumping more than 60 per cent and revenue rising almost 30 per cent. In part because of those strong figures, Apple's stock went on to return 30.9 per cent in the next three months, about double the broader market's gains.
The results: According to Barra, the most significant of those components is inflation, which accounted for 4.2 percentage points of the MSCI World Index's 11.1-per-cent return from the start of 1975 through Sept. 30, 2009. The second biggest factor: dividend income, which accounted for 2.9 percentage points. Real book value growth and price-to-book growth accounted for 2.1 and 1.5 percentage points, respectively. The results were similar for many of the markets within that world index, including the U.S.
What that indicates is that over the long run, about two-thirds of the stock market's returns are the result of inflation and dividend payments - two un-sexy factors to which many stock investors don't give enough thought. SOMETHING KNSC IS TRYING TO DO HERE!!
