Here’s What’s Driving Stock Price Moves
Westpac provided the best shareholder returns on the benchmark NZX50 index last quarter, followed by Z Energy, Sky TV, Spark and private hospital owner Vital Healthcare.
The worst performing NZX50 stock in terms of shareholder return during the quarter was travel software company Serko. This was followed by cancer diagnostics company Pacific Edge, Ryman Healthcare, Fisher and Paykel Healthcare and cinema software company Vista Group, based on figures from data provider Refinitiv.
During the same period, the first three months of the year, the total shareholder return of the NZX50 index fell 7.1%, compared to 33.6% for Serko and 16.1% for Westpac.
Total shareholder return, based on the company’s share price and dividend payout, is a key measure of an investment’s value, said Chris Wilson, head of wealth management solutions at Jarden. .
* Sharemarket slips as investors digest near-term pain from rate hike
* ‘I’m sure they realize their mistake’: Investors remain calm despite market volatility
* Stock market guide for digital natives – how to take $100 and grow it
Knowing how your investments are performing is important, but daily or even quarterly stock price movements are less relevant to an investor with a 30-year investment horizon than to someone thinking very short term.
It’s a risky strategy to try to choose how each stock will perform, which is why a diversified portfolio is so important, Wilson said.
“While you can get an idea of where things are going and what might happen in the future, no one has a perfect forecast of these events and their impact on the market.”
Wilson said longer-term investors will look to companies that will continue to grow and that dividends are an important part of the investment strategy.
A dividend is a distribution of company profits paid to shareholders, who are the owners of the company. If a company does not pay dividends, investors are totally dependent on the return of the value of their stocks increasing for their return.
“They don’t necessarily need to pay dividends today, but they should be expected to generate cash flow in the future.”
Dividends tend to be paid by more mature companies that can afford to return excess profits to investors, rather than start-ups.
A decision to stop paying dividends to investors could be a red flag or a wise business decision. When Covid hit in 2020, many companies temporarily canceled dividend payments as their revenues were hit and the outlook was uncertain.
“If a company were to stop paying dividends because it has an incredible growth opportunity that it’s going to undertake with the money it’s no longer providing in the form of dividends, that can actually be viewed quite positively. “Wilson said.
“But conversely, if a company stops paying dividends because it no longer has excess cash and is no longer able to sustain a dividend, that would be viewed much more negatively.”
The market determines the price of a stock based on tangible factors around the company and its performance, and intangible factors beyond the company’s control.
“If you think about what’s going on right now, the war in Ukraine and the uncertainty around it, obviously it’s having an impact and this conflict is having an impact on people’s opinions and business outlook. “
A company may be unchanged, with the same CEO and board, and the same growth prospects, but its stock price may become quite disconnected from the fundamental business if investors become risk averse.
The emotional side of investing, the fear of missing out, can also be a strong market driver, for example with the surge in GameStop shares last year, which ranged between US$483 and US$12.14 on 52 weeks.
“People saw the stock price start to rise, and they really stopped wondering if GameStop was a good company or not, but they really wondered if the stock price would continue to rise. .”
A highly volatile portfolio will test your will and appetite to stay in the market, he said.
“One of the things you try to avoid is that people who start investing and saving for the future with investments have a bad short-term experience. This prevents them from achieving their longer-term goals. because they took too many risks too soon.