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Stock Price and Fundamentals

Jim Cramer:
Even at the height of my firm, Cramer Berkowirtz, I managed only about $450 million for a bunch of wealthy families, a pittance compared to the major mutual funds arid some large hedge funds that control the marginal dollar that determines stock prices at the end of' the day. I mention this to drill into your head the importance considering supply and demand of the stock at all times. That's because way too many people get confused; they think we are trading the actual companies themselves, that the pieces of paper we are trading, investing, owning, are sort of redemptive right, a coupon that will give you certain cents off, or an ownership right that will allow You to have a chunk of the brick and. mortar if not the cash in the treasury of' the joint, Untrue. These are, in the end, simply pieces of paper, to be bought, sold, or manipulated up and down by those with more capital than others. All other investment books stress the linkage between the stock and the company. Me? I stress the abject lack of short-term linkage and the opportunities that such an unconnectedness presents. While it is true that over the very, very long term-say your lifetime-stocks should indeed reflect the fundamentals, over the short term, the twelve- to eighteen-month time frame that is most applicable to most owners these days like it or not that's how long most stocks are held-the fundamentals of the company play only a part in what moves a stock up or down. In fact, I believe the reason that so many professional managers and amateurs fail to beat the market or make big money is that: they are way too hung up on the largely artificial linkage, short-term, between a company's health and the health of the stock. I think that deep down they like the linkage because it makes them feel that they aren't gambling with their money (or their clients' money). They think that if they stay focused on the fundamentals they have turned gambling into investing. I wish I could be so glib. I wish I could focus only on the company arid not the stock, because it would be much easier. But it would also be much less lucrative.

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