How Wobbly Are the Biggest Stocks in the Market?

Inspired by @johnhuber72

On Average, the biggest stocks in the market fluctuate over 40% per year!

Let that sink in for a minute.

The intrinsic value (what a business is worth) of large companies does not change much, from year to year. For example, I have no doubt that Procter & Gamble’s intrinsic value didn’t change by 55% in just one year! But its stock price did! Ditto for other companies.

These S&P500 stocks represent the biggest companies in the world. They are all companies you have most likely heard of. They are very well known and very well understood. Yet, so much fluctuation.

Why does this happen?

The Short Answer: It doesn’t really matter.

My Hypothesis: Human Nature causes severe oscillations between Fear and Greed. How many times have you bought a stock just because it had gone up a lot? Or sold a stock because it had fallen a lot? Only to regret it later...

Investors buy and sell stocks because of short term reasons, reasons that are completely disconnected from the fundamentals of a business. 

What does that imply?

Well, stock prices almost certainly move much more than company intrinsic values do. That is, stock prices become disconnected from their fair values (sometimes they’re overvalued and sometimes undervalued).

This volatility is what can create very good investment opportunities for us. 

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