I was just reading the news that the netflix stock went up 17% after strong earnings, when a question came to my mind. Seeking input of the WSO community on the same.
News like this obviously indicate thah the market reacts to stocks based on short-term news. Sell-side analysts also change their models drastically based on every single earnings report, or any other short term news. In this scenario, how does one maintain a long-term view on stocks?
Any comments would be much appreciated. Thanks!
Short-term, long-term, it's all time dude. Cash flows, earnings, because of time value this stuff is more valuable the closer it is to the present. If people think that Netflix's pop today is indicative of future earning and cash flow potential, why wouldn't it be worth more? Especially since it should be persistent for what most would describe as the short-term.
I disagree with OP and agree with introspectivebanker. i think markets tend to take the long view. The long view is influenced by today's news though which gives the impression markets are short sighted.
By definition the only news that could change our estimates for the future is the news that comes out now. We've already (you assume) factored in news for the past, and we can't see the future. I think markets consistently operate with a long view.
Markets price in new information. The new information, in a case like this, might have beaten expectations and alters the market's projection of the entity's future free cash flows, whose present value is now higher.
There is investing vs trading. But there is no short-term investing vs long-term investing. All investing is trying to understand and price the present value of a security's future - into forever - free cash flows, with some risk management thrown in for good measure.
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