Investor Behavior – “You can bury your head in 10q’s and 8k’s and memorize a thousand facts about a company. You can become an expert on a given stock sector and establish relationships with all of the executives who run the show. You can build your own DCF models and outguess the other guessers on earnings estimates and forward guidance. But until you accept that market mood and behavior is as big a factor as the fundamentals, you won’t ever be completely honest with yourself. The E is only half of the PE. No matter how good you are at understanding and predicting the E, you’ve still only got half the story. The P is determined entirely by psychology.”
– (The Reformed Broker)
In August of 2015 the stock markets around the world were once again shocked to see stock indexes drop significantly in a matter of days. The biggest drop happened on Monday August 24th at the opening bell at 9:30am EST.
The total drop in 3 days accounted for 11.7% in the S&P 500 futures. Yes this happened in 3 days.
On Monday the 24th from open to the low of the day the S&P 500 dropped 6.8%. The Dow lost more than 1000 points early in the day.
What did this have to do with earnings? Very little from what I could tell. However, stocks don’t always move based on earnings, or fundamental influences.
So what happened?
I would like to recap those few trading days in August to illustrate a point about markets. They are not always rational, and they move based on more than just fundamental news or earnings.