Show pageOld revisionsBacklinksBack to top This page is read only. You can view the source, but not change it. Ask your administrator if you think this is wrong. ====== Stock Performance ====== Stock Performance measures the return an investment in a company's stock generates over a specific time. Think of it as the stock's report card. Did it pass with flying colors, or is it flunking? Most people immediately think of a rising stock price, but that’s only half the story. True stock performance, a concept often referred to as [[total return]], combines two critical elements: the change in the stock’s price ([[price appreciation]]) and any [[dividends]] paid out to shareholders. For instance, a stock's price might stay flat for a year, leading you to believe its performance was zero. However, if it paid a hefty 5% dividend, your actual performance was a positive 5%. Understanding this distinction is crucial because it paints a far more accurate picture of how your investment is truly working for you. It’s the difference between judging a tree by its height alone versus considering the fruit it bears. ===== How Is Stock Performance Measured? ===== To get a grip on a stock's performance, you need to look at a few key metrics. Simply glancing at a price chart won't cut it. ==== Key Metrics ==== * **Price Appreciation:** This is the most straightforward component. It's the increase (or decrease) in the stock's market price over a period. If you bought a stock at $100 and it's now $110, you have a $10, or 10%, price appreciation. It's the part of performance that gets all the headlines. * **Total Return:** This is the big one. It gives you the complete picture by adding dividends back into the equation. The formula is beautifully simple: **Total Return = ( (Ending Price - Beginning Price) + Dividends ) / Beginning Price** Using this metric prevents you from overlooking stable, dividend-paying companies that might be fantastic long-term holdings, even if their stock price doesn't shoot for the moon. It reflects your //actual// profit. * **Benchmarking:** Performance is relative. A stock gaining 10% in a year sounds great, but not if the overall market, like the [[S&P 500]] index, gained 25%. To properly judge performance, you must compare it to a relevant [[benchmark]] or the performance of similar companies in its sector. This helps you answer the question: "Is my stock's success due to its own merits or just because a rising tide is lifting all boats?" ===== The Value Investor's Perspective ===== For a value investor, the daily, monthly, or even yearly gyrations of a stock's price are often just "noise." The legendary [[Warren Buffett]] famously said, "Our favorite holding period is forever." This mindset shifts the focus from //stock performance// to //business performance//. ==== Stock Price vs. Business Value ==== A true value investor is obsessed with the underlying company's health: its earnings power, its debt levels, the growth of its [[book value]], and its competitive advantages. They believe that over the long run, a company's stock price will eventually reflect its true [[intrinsic value]]. Therefore, they see a disconnect between short-term stock performance and long-term business reality as an opportunity. This is where [[Benjamin Graham]]'s famous parable of [[Mr. Market]] comes in. ==== Mr. Market's Mood Swings ==== Graham imagined the market as a manic-depressive business partner, [[Mr. Market]]. Some days he's euphoric and offers to buy your shares at ridiculously high prices (great short-term performance!). On other days, he's despondent and offers to sell you his shares at absurdly low prices (terrible short-term performance!). The savvy investor ignores his mood swings. They understand that poor stock performance in the short term, despite a healthy underlying business, is not a disaster—it's a sale! It’s a chance to buy more of a great company at a discount. ===== Practical Takeaways ===== So, what does this all mean for you as an investor? * **Look Beyond the Ticker.** Don't be hypnotized by the daily up-and-down of a stock's price. It's often a poor indicator of the company's long-term health. * **Always Calculate Total Return.** Include dividends in your performance calculations to see the whole picture. Many brokerage platforms do this for you. * **Context is King.** Always measure performance against a relevant benchmark to know if you're truly outperforming the market or just riding its coattails. * **Invest in Businesses, Not Tickers.** As a value investor, your primary concern should be the long-term performance and health of the company. If the business does well over time, the stock performance will eventually follow.