Stories drive the Stock Market
As I read through annual reports, it became increasingly clear to me that they would not answer the question of what drives earnings, but would only be useful to get a comprehensive picture of a company’s investment thesis, and also useful to get a delta if something changes in the news, for example, and a company has exposure to that factor, such as sales abroad in China and there being a trade war. Really what drives the stock price of a company is the story of the company, and once there are setbacks in the story, there will be setbacks in reality. So in a way, the stock price drives company prospects and company prospects don’t drive the stock price. How do we access the stories of companies? Certainly not via their charts which are largely irrelevant as a chart can mean five different stories to five different people. We access the stories of companies by paying attention to stock movements relative to one another, so by relative value, which appears to me to be one of the only reliable ways to trade, the other ways being related to market making where the bid is higher than the ask (where the market maker charges a premium both ways for selling and buying and stores an inventory to make the market).
Right now, though, I will continue to read more annual reports, because that’s not to trade better but to become a better trader, and a trader is someone who understands companies that he trades, or anyone could be a trader.