Stocks’ expected values (in terms of time-discounted dividends or similar) have volatility, from things like business decisions, technology development, and capital re-investment.
A stocks expected value serves as an anchor point for its current price (kind of?)
A stock’s price will change around that anchor until it has expected returns that justify the volatility risk.
Thus a stock price will increase when either its expected value goes up, or its volatility goes down (without changing expected value).
In an efficient market, knowledge that changes your expected value of the stock is probably already priced in, but you can still capture the gains due to volatility.
In an efficient market, knowledge that changes your expected value of the stock is probably already priced in, but you can still capture the gains due to volatility.
I’m not certain I understand this bullet point. Can you explain what you mean?
Rephrase attempt: If you were to buy and hold a company’s stock, and you don’t expect to know better than the market, then your anticipated gains over time are independent of what you think the company’s underlying value will do (since the market has already priced that in). But you should still anticipate gains over time due to volatility’s effect on pricing.
Ok, so the argument would go:
Stocks’ expected values (in terms of time-discounted dividends or similar) have volatility, from things like business decisions, technology development, and capital re-investment.
A stocks expected value serves as an anchor point for its current price (kind of?)
A stock’s price will change around that anchor until it has expected returns that justify the volatility risk.
Thus a stock price will increase when either its expected value goes up, or its volatility goes down (without changing expected value).
In an efficient market, knowledge that changes your expected value of the stock is probably already priced in, but you can still capture the gains due to volatility.
Does that seem in line with what you’re saying?
I’m not certain I understand this bullet point. Can you explain what you mean?
[Fixed.]
Typo: “volatility goes up” → “volatility goes down”Fixed.
Rephrase attempt: If you were to buy and hold a company’s stock, and you don’t expect to know better than the market, then your anticipated gains over time are independent of what you think the company’s underlying value will do (since the market has already priced that in). But you should still anticipate gains over time due to volatility’s effect on pricing.
Yes. Your understanding is in line with the idea of risk-adjustment.