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Comment by harryh | Hacker News Reader

Honest answer:

Your premise that the stock price is "just pure massive speculation of the market players to begin with." is wrong.

Maybe in the short term, but in the long run the stock price of companies reflects the value of what they are able to build. When management feels that it has cash that it is unable to invest productively in building company value it returns that cash to shareholders in the form of dividends or buybacks.

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If it was not speculation the stock market prices would only change the day of the earnings call. Anything else is speculative, since we don't (at least should not) have access to the real performance numbers the rest of the year.

Not just earning calls provide new information. The market also reacts to economic data, key people leaving a company, regulatory changes, natural disasters and so on. If it changes the company's outlook, it will also move the stock price.

That’s a super simplified model of the world. Investors put a lot of work into finding out information between earnings calls, including talking to suppliers and customers, acquiring data on sales (obtained via retailers, credit card companies, satellite data, etc), and observing external events that affect the market including regulatory changes and the earnings of peer companies. All of these bits of information can provide insight on the hidden information.

There is, of course, speculation in the market. My objection was to use of the phrase "pure speculation."

As Benjamin Graham said, the stock market is a voting machine in the short term but a weighing machine in the long term.

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