If you had invested P 140,000 in buying shares of EEI Corporation last year, your money would have been worth P 367,500 as of the closing trading day today. The company's shares had increased 2.625 times from 2.80 in Sept. 26, 2011 to 7.35 as of today, Sept. 9 (closing prices) in just a span of one year.
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| EEI stock price for 2 years |
While there are other companies which experienced rapid increase (or decrease) in stock prices in a shorter period, it is interesting to note how it all came about. Two events indirectly affected the company's stock performance:
European Debt Crisis. The problem with Greece' economy seemed to have reached its peak around September 2011 when repeated attempts of a bailout have failed. As a result, stocks around the world were down as investors were increasingly concerned of a global financial meltdown,like what has happened in 2009. Stocks were traded at a lower value and a bearish atmosphere is in some trader's mindset.
Government Spending. In the Philippines, the current administration received criticism on cutting on government spending, which could have been used to create jobs and thus help strengthen the economy.
Fast forward one year later. Though the threat of economic meltdown spiraling throughout the world is still present, European leaders has so far managed to keep the problem at bay. The local government have also boosted on the spending and have posted positive results.
I am not saying that EEI's huge upturn is not attributable to the its performance. In fact, EEI had already reached 61% of its net income last year after the first half of the year. It is a decent figure, but not enough to explain the stock movement.
The unfavorable economic conditions last year have affected almost all the stocks, and doubly so for EEI as it is heavily dependent on construction contracts from government and big companies. Once the situation have reversed, the effect of the increase was also doubled. It also helped that the company continue to post increases on its net income.
What does this tell us? A stock's price is not solely dependent on a single factor. It is a combination of the company's actual performance, current economic conditions, and the overall perception toward the company. As intelligent as these investors and analysts maybe, their decisions are also driven by emotional responses to their environment.
In times like this I remind my self of a saying from Warren Buffet, "Be Greedy when everyone else is scared and be scared when everyone else is greedy". Do not be dictated by what everyone else feels, because the best opportunity to earn is to buy at a cheap price and aim to sell it higher.
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Disclaimer: This article is solely the opinion of the blogger based on personal research. Any statement made is not a conclusion of absolute fact and is not intended to impose or persuade anyone's judgement.