Originally Posted by sog35
In the LONG RUN stock prices are based on expected future cash flows.
But in the short term they are not.
That doesn't make sense. Cash flow and what a company does changes over time so future expectations keep changing, which makes them all short-term. Mid-2006, Apple was at under $10, now it's at $100. That's in just 8 years (is that what you'd call long-term?). Are you suggesting it was possible to predict the iPhone would arrive in 2007 and subsequently iPad in 2010 and multiply the stock by 10?
Apple's net income in 2006 was $1.9b ($19.3b revenue) for the entire year and the stock was around $10.
In 2013, the net income was $37b ($171b revenue) and the stock is at $100.
It seems to me that stock valuations follow revenue more closely than net income, which makes some sense but very flawed if the net margins are low and never improve. It would help explain why Amazon is valued so highly as they have $74b revenue for 2013.
Were people expecting in 2006 that Apple would be making nearly 20x their earnings within 7 years? Of course not. Not even after the iPhone arrived because it was really expensive and they decided to cut the price $200 and it didn't have the App Store:
If it was so predictable, why is Morgan Stanley, which handles trillions of dollars of assets only able to project with an accuracy of -25% to +33% within 12 months?
Here's another projection just for comparison of accuracy:
They can't even tell for certain if it will go up or down in 12 months. Nobody can. There are probabilities to make educated guesses but they are still guesses. They'll come out with a new iPhone soon, it'll sell pretty well but no certainty on if the unit volume will grow significantly nor that if it does grow that the margins won't fall. There's no certainty of Apple's current stock price already being too high or too low because it's not a number based directly on what they're doing, it's a number based on how traders think they will do i.e how much is Apple worth to them, not how much is Apple worth based on how much money they make now. As you keep saying, it's about future earnings which you can't tell just like you couldn't tell back in 2006.