Don’t forget how volatile stocks really are

Source: Andy Zaky

Source: Andy Zaky

When you think of the company Apple, what sort of characteristics of the company do you envision?

Some things that many would bring up are:

  • Apple is a very stable company
  • Apple makes a huge amount of profit
  • Apple stock is stable

Thursday showed a different story. Without any real warning the stock suddenly dropped from $360 to $349 in mere minutes. While $11 doesn’t seem like a lot considering the total stock price, about $10 billion worth of market capitalization was lost when it dropped $11.

Think about it. $10 billion in market cap value lost in 4 minutes.

And the reason behind it was a rumor that Steve Jobs was back in the hospital. A few decided to sell based on that rumor and suddenly others followed suit and a mini-frenzy developed to get out before the stock went down even more.

Thankfully the stock is now recovering, but this is a great example of how psychological the stock market really is. Rumors can send stocks tumbling faster than financial statements.




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Comments
2 Responses to “Don’t forget how volatile stocks really are”
  1. Eric Chaump says:

    I too found out how volatile stocks can be today. I own a stock, JOEZ, that’s been on a steady rise since I bought it. In fact, I’ve nearly doubled my initial investment over the last couple years. Unfortunately, the stock fell 28% upon opening this morning and ended the day down 25%. Why did this happen? I looked for some news articles to find the answer to my question only to find they had released earnings today. Even better, they reported a 23% increase in net sales for the year. But wait, that’s good news. Where’s the bad news? After reading further, I found they significantly increased operating expenses while operating income and earning per share fell dramatically. I wouldn’t say JOEZ is as stable as AAPL, having a beta of 1.72 compared to AAPL’s 1.38, but it’s just another good example of how volatile stocks can really be.

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