Many investors are taught to find good companies, then buy and hold their stock. Investors and experts alike often wonder why there can be a substantial disconnect between a company’s profits or losses, versus its stock performance. The truth is that even the most profitable companies will produce stock returns that can disappoint, and vice versa.

Take for example, IBM. In September of 1999, IBM’s stock was trading at around $130 per share. Twenty-four years later, in May of 2023, it was trading at almost the same $130 price. During that time, the company consistently reported profits, but the stock did not.

Markets and Economies

Another good example of the disconnect between company success and stock performance can be seen by examining the S&P 500 index. As a collective group, the S&P 500 “companies” have shown profits (positive earnings yield) every year without exception, going back to the index’s inception in 1926. During the same period, the S&P 500 had 26 down years, and extended periods with substantial declines. S&P 500 companies were profitable. Stocks were not.

Most experts agree that the stock market leads the economy, not the other way around. During the great depression, 1933 was considered the worst year for the economy, with unemployment reaching its highest levels. That same year, the market index was up 56.79%. Less than a decade later, in December 1942, the US declared war on Japan and Germany. The war ended in September 1945. How did the S&P 500 perform heading into and during the war?


S&P 500 Performance










The market was up every year during that time. Then, in 1946, after the war had ended, the S&P 500 was down (-12.05%). History tells us what is possible in the markets.

The Fundamental Differences Between Companies and Stocks

There are fundamental differences between what makes a successful company and the reality of how traded markets work. Understanding some of these differences will help you better understand what you need to know to be a successful investor. 

So, what drives the results of a company, and what drives the results of a stock?

Most companies, such as a local pizza shop, are driven by profits and losses. Simply put, if the business reports positive earnings, then the owners will make money. If the company loses money, then the owners also lose.

On the other hand, the stock price of a public company, like Dominoes, will fluctuate in price. The current value is based on the shifting supply and demand for the traded shares. This means that prices are based on the future beliefs and emotions of investors, and not current profits or losses. When investors become emotional about their future beliefs, then the price changes will become more volatile and erratic.

Another big difference between stocks and companies is liquidity. Buying or selling a business can take time and can be a sophisticated process. In contrast, buying or selling your ownership shares of a publicly traded company can be executed in seconds with a phone call or a few keystrokes on your computer. 

Owning a successful business versus owning a successful stock requires two different approaches. Just like you must be able to manage a profitable business, you also need a process for managing a portfolio of securities.  All liquid securities will have both bull and bear markets, and it is assumed that investors can tell the difference. By not using liquidity to your advantage, it can become a disadvantage.

Understanding supply and demand is simple, but taking advantage of the tools and technology used to manage securities is complex. At Canterbury Investment Management, we use a portfolio management methodology called “Adaptive Portfolio Management.” Adaptive Portfolio Management is designed to move in concert with changing market environments and take advantage of stock liquidity and the ongoing battle between supply and demand.

To learn more about Adaptive Portfolio Management, visit

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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