[saidajigumi]

Then there's Warren Buffet's approach, which is to understand the "value" of the asset. He uses an example around a farm he purchased, one of his early investments. He likened the stock market to a (hypothetical) crazy neighbor to his farm, who every morning shouts a purchase price over the fence at him. One day, the price is half what it was the prior day! Buffet's lesson is that he learned to remain calm, because the underlying value of the investment didn't change.

Thus the challenge is separating market feedback reactions (aka fear and bidding robots) from real-world valuation adjustments (aka mere delayed demand vs. destruction of long-term value).

[strbean]

This is an excellent analogy. The stock market is an aggregate of people's sentiments and numerical analyses (which often have absolutely no predictive power).

I think the old George Carlin quote applies perfectly to it - "Think of how stupid the average person is, and realize half of them are stupider than that."

If you've ever tried to pick stocks, you'll see countless examples where the stock price just seems to ignore the realities of a company. Level Three Communications taught me that lesson. Huge backbone fiber provider, growing and scoring major contracts continually, increasing revenues/profits for a decade, and the stock prices was practically constant. Then they rebrand as a CDN (with zero impact to how they operate) and their price rides the buzzword wave right into a big acquisition.