Should You Care About These Big Price Movements?

A quick glance at Yahoo! Finance’s “Price Gainers” and “Price Losers” at 4:35pm threw up Sunpower Group (SGX: 5GD) and SunVic Chemical Holdings (SGX:A7S) as the current biggest winner and loser for the day respectively. The former’s up by 10.8% to S$0.133 while the latter’s slashed by 14.5% to S$0.65.

Those are huge movements given that the Straits Times Index (SGX: ^STI) was down by only around 1% to 3,100 points in the same time. So, what happened to them?

Chemical products manufacturer SunVic had just announced that it had just sold a chemicals plant to Euronext Paris-listed Arkema SA for RMB 3.9b (around S$819m). The sale would clock up a pre-tax accounting gain of RMB1.87b (around S$393m) for SunVic and the company would be using the sale proceeds to pay down debt and “grow its intermediate chemical business in [China]”.

Simply said, that’s some big news, considering that the company’s market capitalisation is only about S$405m. So, maybe the market’s seeing something it doesn’t like with the deal… Fair enough.

But there’s nothing happening with energy-saving products maker Sunpower Group. In fact, the last time the company filed any material information with stock exchange operator Singapore Exchange was back in 23 Dec 2013. What could have caused the big jump? Can there even be privileged information that only a handful know?

Well honestly, I have no clue. But what I do know is, there are cases where it’s an absolute waste of time for an investor to be fixated over short-term price movements.

Sometimes, large short-term fluctuations in the financial markets can be due to the silliest of reasons. Don’t believe me? Just take the case of Steven Noel Perkins, a former UK-based oil futures broker. Perkins had made several trades while drunk back in 2009, causing huge spikes in global prices of Brent crude.

As shared by my American colleague Matt Koppenheffer, the American newspaper The New York Times did a report on Perkins back in June 2010. This was part of the paper’s report:

““Mr. Perkins’s explanation for his trading on 29 and 30 June is that he was drunk”, the [Financial Services Authority] said. “He claims to have limited recollection of events on Monday and claims to have been in an alcohol-induced blackout at the time he traded.”

Anyone thinking that something huge was brewing in the global oil futures market must be sorely disappointed after Perkins’ alcohol-induced blunder was made known.

So, to bridge the lesson from Perkins’s story to the share market, here’s what I have: Rather than focus on daily price wiggles that can be sometimes be caused by laughable reasons, investors should instead focus on a share’s business value and long-term corporate performance.

To paraphrase from investing legend Benjamin Graham, over the long-term, it’s a share’s underlying business results that count; over the short-term however, it’s just a popularity contest. And truth be told, it can be quite tough to judge how superficial popularity-votes are cast.

I’ve written earlier today about how blue chip shares like Keppel Corporation (SGX: BN4), Jardine Cycle & Carriage (SGX: C07), and United Overseas Bank (SGX: U11) had seen huge jumps in corporate profits of 1,008%, 1,074%, and 1,020% respectively since the start of 1992, some 22 years ago.

How have their share prices fared in the same period? Total returns for Keppel Corp and Jardine C&C were 891% and 1,391% respectively. Meanwhile, UOB was no slouch itself with a 900% gain. That’s what a focus on a share’s business can do.

All told, short-term price movements mean very little to super investors like Warren Buffett. That’s because they know what truly matters – the price you pay for a business, and how well the business eventually does.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.