Determine whether stock prices are affected more by long-term or short-term performance
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Determine whether stock prices are affected more by long-term or short-term performance
Stock prices are affected more by the long-term performance because the price reflects growth as well as earnings. A short period may show both negative and positive conduct where almost all companies may experience a worse quarter, if considered by investors, they would prefer not to invest. Long-term performance shows a trend used by stockholders when determining the value of a stock that is worth investing in it. That can help the company to get solutions to the challenges faced and ensure they do not happen again in the long run. Long-term performance assists the company recover after the establishment of new laws as well as mergers and acquisitions, which lead to short-term imperfections. The investors will be willing to pay higher prices for companies whose growth rate is higher over time. Long-term performance with a record of increasing dividends will encourage investors to pay more any time they wish to invest in the company. When the prices of stock increase, in the end, it means that the earning will be higher as well as increased growth in the value of the stock (Higgins, Koski & Mitton, 2016).
An example of the effect that supports my claim
Dell agreed to buy back stock from VMware to privatize so that it can survive in the long run. The performance of its sales changes every quarter. The people who invest there are interested in long term success but not the gains that they would receive in the short term. Michael Dell gets rid of activists in the short-term to concentrate on long-term performance. Dell understands that price changes have a significant impact on the gains where an increase in price in the longterm will result in higher returns (Gatti & Vagnani, 2016).