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Let’s say that you own a company and let’s say that you make and sell refrigerators.  At first your product line is pretty standard.  Sales are decent but there is still room for improvement.  You start changing your design and sales start improving.  With the improved sales you have a little extra money, so you hire an engineer to improve your product.  After a few weeks this genius engineer invents something that revolutionizes refrigerators and sales begin to take off and you barely have the capacity to meet orders.   

At this point, in my view, you have four choices.  You can make your customers wait and continue at your current capacity (not a wise decision), you can go to a bank and ask for a loan to invest in increasing your capacity to meet demand subjecting yourself to debt and interest payments, you can go to a venture capitalist, ask for money and loose a measure of ownership in your company, or you can completely loose ownership in your company and go public by offering stocks. 

Let’s say you go public.  With the extra money you gained from the IPO you hire a dozen more genius engineers and they continually work on improving your product.  Sales continue to increase and all looks well. 

All of a sudden these people called analysts start looking at your company and they start deciding how much it is worth, how much it should grow and how much it should sell. 

Now let’s say that the engineers have made all of the improvements they could make to your refrigerators and sales stabilize.  You’re still selling a lot of refrigerators but some analyst decides that you should have sold more than you did and the price that your stock is trading for in the market goes down.   

So, in spite of how much your company has grown or how well your company is managed, the fact that you didn’t meet some analyst’s expectations for the quarter has led people to think that your company is somehow faltering and worth less. 

Now let’s assume you have a competitor who has followed the same path, except instead of hiring genius engineers, he is somehow steeling your IP and coming up with comparable products.  The managers are avaricious, acquisitive and all they want is to improve their bottom line at all costs.  Turn over is high at the company due to terrible management and it is tottering on ruin.   

However, as a result of some one-off, crooked deal that will never occur again this company sells more refrigerators and meets the analyst’s expectations.  The price of the stocks goes up.     

Now multiply this by thousands of companies in hundreds of different industries.  

What exactly is the stock market telling us and why has it become so important that it is watched by everyone in the world? 

Who is making the stock market rise and fall?  Is it the businesses themselves, the market environment, the analysts or the day trader trying to get rich quick? 

I like the old days when a company that was well managed, was well esteemed.