But all this has left me scratching my head because the economic impact of COVID-19 would have to be a lot bigger than anyone seems to be envisaging to make arithmetic sense of sustained stock price falls this big, let alone bigger.Ultimately what is valuable about stocks is the right to the underlying companies’ “residual” profits, that is to say what is left over after paying interest to debt investors .
It stands to reason that if global economic output returns to the pre-outbreak trend, then so will company profits. What should matter, then, is the depth and duration of a temporary dip. We don’t know what these will be. First, if the stock market behaves like Keynes’s famous “beauty contest”, then the way to make money is to second-guess other market participants rather than calculating fair values.
Source: News Formal (newsformal.com)
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