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September Edition of Portfolio Construction – “Mark-to-Market”
When you buy a share of a company, you are effectively paying for the assets and the future earnings of the company. It sounds like a long-term commitment. Since markets are open 7-8 hours a day, five days a week; there is a value assigned to it every second during the open market. That price reflects at that moment what the buyers and sellers want to transact (pay and sell) based on news, their own liquidity, situation and, most importantly, their mood. Generally, the investors (mainly professional money managers) that participate have done some homework to assess the value, however speculators also play a role. This makes the price at any given time somewhat random.
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