Lets say I own shares of Colgate from 1977. Suddenly I see that the earnings for this quarter has fallen by Re. 1. What should I do? Sell the share?
Should I be worried about the eps going from Rs. 7 to Rs. 6 a quarter? Is it really such a big deal?
Should I be worried about this one rupee or be thrilled about the 50% market share in toothpaste and oral care?
Does it not sound stupid that you sell off a share because it has just fallen in one quarter? DOES all the great work in building the company go away? And the market ‘punishes’ it by dropping far, far more than the change in the earnings justify. Look at how badly the OMC have been hammered because the govt said the oil companies will bear Re. 1 of the petrol hike and not pass it on. Surely the OMC will be a good buy, will it not?
Look how badly Dewan Housing Finance has been hammered. Even today it has fallen 20%.
Sadly the market has a bunch of people who can move a share by a huge number – say 50X the change in the earnings. So if a Colgate earnings falls by Re. 1, the price of the share falls by at least Rs. 50 (the pe)…but as Colgate is a high flier, the fall could be Rs. 100!!
This makes it attractive for the company to manipulate the earnings. Then speak to the honest gentlemen in the media industry to politely talk about it in the media! Lol.
In fact the best companies in which I have invested do not ever come on television. Never.
The real rotten companies can and do manipulate the earnings, then discuss it in the media and MANIPULATE the share prices for a week or even a month.. How long is this sustainable? I do not know, it is for you to figure it out.
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