Market Price Fluctuations: An Added Consideration
Something should be said about the significance of average market prices as a measure of managerial competence.
- The shareholder judges whether his own investment has been successful in terms both of dividends received and of the long-range trend of the average market value.
- The same criteria should logically be applied in testing the effectiveness of a company’s management and the soundness of its attitude toward the owners of the business.
This statement may sound like a truism, but it needs to be emphasized.
- For as yet there is no accepted technique or approach by which management is brought to the bar of market opinion.
On the contrary, managements have always insisted that they have no responsibility of any kind for what happens to the market value of their shares.
- It is true, of course, that they are not accountable for those fluctuations in price which, as we have been insisting, bear no relationship to underlying conditions and values.
- But it is only the lack of alertness and intelligence among the rank and file of shareholders that permits this immunity to extend to the entire realm of market quotations, including the permanent establishment of a depreciated and unsatisfactory price level.