VituVingiSana wrote:@mnandii said "It is important to note that as Safaricom continues to fall so will the profitability of the company."
Why would the profitability of Safcom (the business) trend the fall in the price of the shares?
On a fundamental basis, I understand why the (potential) DECREASE in profits could lead to a lower share price BUT I do not understand why profits would follow a decrease in the share price.
This is the
whole point on Elliott Waves and Socionomics. . Social actions (we can put fundamentals under this)
follow social mood and not vice versa (as is commonly assumed).
The price of the share is a
barometer to measure the tenor of social mood. When the market trends up then social mood is trending up(becomes increasingly positive). When the market trends down then this is evidence that social mood is trending down(becomes increasingly negative). When mood is positive then expect bullish fundamentals and when mood is negative then expect bearish fundamentals.
Socionomics makes a distinction between
Economics and
Finance. The laws that apply to Economics do not apply to Finance.
In short, what people assume to be the
causes of social actions (e.g good fundamentals) are actually symptoms. Social actions have a cause which is the mass psychology of the crowd which can be gauged (much the same way you can measure temperature) using the stock market.
Even with your example above, a decrease in profits would lead to a decrease in share price, still begs one more question - what has
caused the decline in profits in the first place?!
People usually make the statement and believe it to be true
that war makes people angry . But if you sit back and thoroughly question this statement you'll find that people have completely
flipped the symptom and its cause. The correct statement is
angry people make war. War is one of the symptoms that results when people are angry. Again negative social mood is the culprit(the cause).
The above is the same reasoning that attends understanding Finance.