Sunday, September 27, 2020

Stock Price Disconnect

Stock prices, market cap, and the actual value of a company are often entirely disconnected.

A reader wrote to me asking about Pitney Bowes stock. I wrote about it before, didn't think much of the company, based on my experiences with their products many years ago. I mean, postage meters, how outdated is that?

Recently, I ran into an employee of the company and he explained to me their new product strategy. They're trying to offer companies a one-stop solution for shipping needs. You can log onto their site and it will determine which is the best shipping option for you, UPS, Federal Express, or the United States Postal Service. And then can print labels for all three services, depending on how fast you want the product to get to its destination, and how much you want to pay.

In this era of e-commerce, it seems like a smart business plan and one with a future. Whether or not it is very profitable or not remains to be seen. There are good business plans out there that make money, and as long as you make a penny more then you spend, you could stay in business. This doesn't mean the company is worth an awful lot of money.  It's a good business plan they have - it is not a license to print money, by a long shot.  I doubt this is "the next big thing!®"

The reader apparently bought a lot of Pitney Bowes stock a while back when somebody was hyping it, claiming it was going to go through the roof. However it didn't go through the roof, it merely sort of did okay, and in fact dropped in value. It went up in value probably because people were hyping the stock and it went back down to earth when people realized it was just a thing not necessarily the next big thing.

I think the same is true of Kodak stock.  People hype the stock on the Internet, and it goes up in value, because the plebes think Kodak's vague and indecipherable plans are the next big thing because of some complicated plan to issue cryptocurrency that has yet to come to fruition (and maybe never will).    People buy into hype, and cryptocurrencies are a prime example.  People are throwing money at anything that has "crypto" attached to it, just as folks threw money at "dot com" back in the day (which was not that long ago!).

There's nothing wrong with just being a thing and not the next big thing. A stock that pays regular dividends from a company that makes regular profits is not a bad idea. I have no idea if this describes Pitney-Bowes, but it describes it awful lot of other companies.

Unfortunately, we have this casino mentality in the stock market these days. People want to latch onto the next big thing and hope that they can take a small amount of money and parlay it into a huge amount of money. But most, like our reader, end up taking a small amount of money and making it even to a smaller amount of money, often an amount of money they can't afford to lose.

There are no get rich quick schemes that actually work. The best thing is to invest in a panoply of different things and hope that some of them make money while maybe a few make spectacular amounts of money - but expect that some will lose money.  Over time – and that's the key, time - you'll accumulate wealth. Not a whole lot at once, but a little bit over a long period of time. And relatively speaking, you have a long period of time to invest, unless you're an old fart like me.

I am out of the game at this point. Stock Investing is no longer of interest to me as I am riding the part of the roller coaster where you put your hands up and go "Whee!" all the way down to the end.

And by the end, well, if you don't know what I'm talking about, then you haven't been listening very closely.  Everyone's investment timeline is finite.