If You Communicate About Stock Options…

by Frank Roche on June 19, 2011

in Communication, Pay

If you communicate about stock options, you have to know some things. Knowing how the stock market works is a good start.

Much of what you think you know, you don’t. Trust me, I’ve seen enough slaughtered stock option and 401(k) communication that makes me want to be a vegetarian.

Here’s everything you need to know about how the stock market works (using Apple stock as an example):

Because market price is, once again, the function of nothing more and nothing less than supply and demand. The fact that Apple was trading at a 9 P/E made not one bit of difference as to the supply-demand imbalance leading to its depressed stock price. Supply-demand is in not beholden to valuation.

I cannot stress how important it is for investors to understand this concept. It is the most fundamental principle, the first axiom, the 1+1=2 foundation underlying the financial markets. Apple is not “given” a stock price based on its valuation. It trades at a stock price based on whether on balance, there are more buyers than sellers of the stock at a particular price point. Are more people convinced to buy the stock here at $343 a share or are there more sellers at this price level? The why, the reason, the logical argument doesn’t matter at present value.

That’s from an article called Apple’s Valuation: The One Article Every Investor Should Read. So should every comp and comm pro. Not knowing this stuff is dangerous.

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