“Stock prices represent the market’s best guess at a stock’s future price.”
But they are not the same as the market’s best guess at its future price. If you have a raffle ticket that will, 100% for definite, win $100 when the raffle happens in 10 years time, the the market’s best guess of its future price is $100, but nobody is going to buy it for $100, because $100 now is better than $100 in 10 years.
Whatever it is that people think the stock will be worth in the future, they will pay less than that for it now. (Because $100 in the future isn’t as good as just having the money now). So even if it was a cosmic law of the universe that all companies become more productive over time, and everyone knew this to be true, the stocks in those companies would still go up over time, like the raffle ticket approaching the pay day.
Toy example: 1990 - Stocks in C cost $10. Everyone thinks they will be worth $20 by the year 2000, but 10 years is a reasonably long time to wait to double your money so these two things (the expectation of 20 in the future, and the reality of 10 now) coexist without contradiction. 2000 - Stocks in C now cost $20, as expected. People now think that by 2010 they will be worth $40.
“Stock prices represent the market’s best guess at a stock’s future price.”
But they are not the same as the market’s best guess at its future price. If you have a raffle ticket that will, 100% for definite, win $100 when the raffle happens in 10 years time, the the market’s best guess of its future price is $100, but nobody is going to buy it for $100, because $100 now is better than $100 in 10 years.
Whatever it is that people think the stock will be worth in the future, they will pay less than that for it now. (Because $100 in the future isn’t as good as just having the money now). So even if it was a cosmic law of the universe that all companies become more productive over time, and everyone knew this to be true, the stocks in those companies would still go up over time, like the raffle ticket approaching the pay day.
Toy example:
1990 - Stocks in C cost $10. Everyone thinks they will be worth $20 by the year 2000, but 10 years is a reasonably long time to wait to double your money so these two things (the expectation of 20 in the future, and the reality of 10 now) coexist without contradiction.
2000 - Stocks in C now cost $20, as expected. People now think that by 2010 they will be worth $40.