Back in December 2020, I wrote an article on Moderna and BioNTech. The two companies were the front runners in the COVID vaccine race and their vaccines were on the brink of FDA approval.
In the article, I concluded that their stock prices had already priced in potential profits from their COVID vaccines. When the article was published, Moderna’s stock price was around US$152 and BioNTech’s was at US$120.
Subsequently, both Moderna and BioNTech’s stock prices continued to rise, reaching a peak of around US$449 and US$389, respectively, by mid-2021. At this point, my conclusion in the article seemed wildly inaccurate. But fast forward to today and Moderna and BioNTech’s stock prices have fallen to just US$107 and US$104, respectively. Both companies’ shares now trade around their respective prices back when I wrote my December 2020 article.
Stock prices fluctuate too much
The point of this article you’re reading now is not to say that I was “right”. On the contrary, just because the stock prices of both companies are around what they were, does not make my December 2020 article right.
As Moderna’s and BioNTech stock prices have shown, stock prices fluctuate wildly and often do not accurately reflect companies’ intrinsic values. As a long term stock investor, I don’t want to fool myself into thinking that I was right simply because a stock’s price went up or down. What really matters to a long-term investor is whether a company can return dividends over the lifetime of its business and whether that return is more than what the investor paid for the stock.
Judging an investor’s long-term performance therefore requires patience. It takes decades – not months or years – to judge investment performance. We can only judge the investment performance of a stock after the entire lifecycle of the company has completed, which may even stretch for hundreds of years.
Even if you sold for a profit
I’ll go a step further and say that even if we have sold a stock for a profit, it does not mean we were right. Yes, we may have made a profit, but it could be due to the buyer on the other end of the deal overpaying for the stock – we were just lucky that they mispriced the stock.
You don’t have to look much further than Moderna and BioNTech’s stock prices in 2021. An investor could have bought in December 2020 and sold in mid-2021 for a huge gain. This does not mean that the investor had bought at a good price. It could simply mean that the mid-2021 price was overvalued.
Ultimately, I don’t judge a stock’s investment performance based on the price at the point of sale. What matters is the profit/cash flow that the company generates and dividends paid to shareholders.
To me, the share price is too volatile and is just short term noise that fluctuates daily.
This reminds me of a quote from the movie, Wolf on Wall Street. Matthew McConaughey’s character said something funny yet somewhat true about stock prices, “It’s a.. Fugazi, Fogazi. It’s a wazi, it’s a woozy. It’s fairy dust. It doesn’t exist, it’s never landed, it is not matter, It’s not on the elemental chart. It’s not f*ing real”.
Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. I currently have no vested interest in any companies mentioned. Holdings are subject to change at any time.