@archieboy, if you trust the efficient market hypothesis (EMH), that everything is always factored into the share price at all times, then you might be better off relying on TA (technical analysis, i.e. charts) than FA (fundamental analysis), or just invest in ETFs. Most of us here at Strawman.com believe the market has periods when it is not particularly efficient, i.e. overshoots to both the upside and the downside, particularly when it comes to individual companies, and it is this very lack of perfect efficiency that creates opportunities for those who (a) hold a contrarian view and (b) are right. That's actually the main reason for sites like this to exist - to share and stress-test our views and opinions, and accept feedback, which may result in us changing or modifying our views or opinions. If the EMH was correct, then all of that would be a waste of time because everything (all available information and future prospects of every company) would already be factored in to current share prices, and the prices would always be correct. The reasons for the occasional lack of effiency in share markets vary, but a few of them are:
- Trend followers: A lot of people will buy a company that is going up, primarily because it is going up, and that tends to reinforce the trend, until it runs out of steam and corrects. Those same people are often the ones who will sell a company JUST because the share price is falling. This is NOT an example of an efficient market at work, but it DOES create opportunities for those who have a good idea of what the company SHOULD be trading at, in terms of intrinsic value, and can buy or sell shares as a result of that conviction and wait for the market to come around to their way of thinking. The downside of that is of course that the market can remain irrational longer than you can stay solvent. This trend following extends beyond individual companies; sometimes people are following sector trends, such as sell all mining services stocks, or rotate from "COVID-19 Recovery Plays" back into "Cyclicals". Sometimes they are just buying the market because the market is going up. The common theme is that the buying or selling here isn't based on FA, just on what others are doing.
- Lack of research/Lack of accurate analysis: The majority of market participants who are buying or selling shares in a particular company are often either unaware of some information, or are aware of it but are not particularly interested in it (are not giving the information sufficient weight in their decision making process). This is where most value investors believe they have an edge. If you spend a decent amount of time researching a company and the industry (or industries) in which they operate, then you will probably already be in the top 5% of investors in terms of being reasonably informed about that company and its realistic prospects. This applies far more to smaller companies who have less analysts and brokers looking at them of course. The majority of the market are buying and selling shares based on other people's recommendations rather than on their own research. Of course, it helps if you are correct in your appraisal of the importance and relevance of the information you are basing your decisions on.
- Different conclusions: This is where people are looking at the same data and coming up with very different conclusions about what that data means, or how things are likely to play out. All valuations are based on a number of conclusions and assumptions, and all of them could be wrong.
To give an example, have a look at the chart of Technology One (TNE). They tend to trend for weeks or months at a time, and then just change direction and trend the other way. Over time, zooming out, the overall trend is up, but over shorter periods their SP heads NE for weeks or months, then heads SE for weeks or months.
Do you really believe that TNE was actually worth $9.30 on 13-May-19 then $7.15 on 27-May-19 then $9.19 on 25-Nov-19 then $7.07 on 9-Mar-20 then $10.18 on 4-May-20 then $7.57 on 4-Sep-20 then $9.56 on 26-Nov-20 then $7.64 on 18-Jan-21 then $9.85 on 23-Apr-21? Those are moves of 20% to 30% in both directions in relatively short periods of time. Was the real value of TNE moving up or down by 20% to 30% during those periods? I don't think so. That's not an efficient market, unless you're a trader that is trading the trends, then you might think it was very efficient, but in terms of the market pricing everything in correctly at all times, that is obviously rubbish in this case. There was the odd announcement during the period that caused the market to become more or less bullish or bearish on TNE at the time, but there was also sentiment around tech stocks, including the NASDAQ correction, and COVID-19 and varying views on how it would or would not affect TNE. And then there were the trend followers who just perpetuated the trends.
In terms of CleanSpace (CSX) in particular, and the market's reaction to their 1st half report, I don't have anything of value to add, but I couldn't let the EMH reference go by without chirping in.