Stock prices depend on perceptions of growth and risk. Decisions to buy or sell are to a large extent based on emotions, primarily greed and fear. Unlike hard facts, perceptions and emotions are easy to manipulate. Hard facts can be manipulated only by telling half-truths or lies. It is not surprising, therefore, that otherwise rational people let their emotions take over and were caught up in playing the Share Price Game.
The Game’s goal is to manage or influence stock price to increasingly higher levels without necessarily creating commensurate real value in the enterprise. The price of a company’s shares always moves back toward or through the real value level. It can, however, deviate significantly and for extended periods, if management single-mindedly sets out to manage share price and investor emotions dominate logical analysis. The result: Share price is actually one of the easiest variables for management to control. This makes playing the Share Price Game even more seductive and rewarding, at least in the short term, for those who can control the numbers and “spin” the story. One caveat about the Share Price Game from the outset, however: It’s always doomed to failure, since eventually executives will run out of plausible explanations. Investor emotions of euphoria and greed reverse to dismay and fear.