Part 3/9:
This article delves into the mechanics behind stock market growth, how it diverges from economic indicators, and what it means for future investment strategies.
Value Creation Beyond Economic Growth
An essential insight is that companies can create value for shareholders even without direct growth. Take, for instance, a hypothetical company with a share price of $100 generating a profit of 3% annually, resulting in $3 of value for shareholders each year. If inflation rises concurrently by 3%, nominal value increases, showcasing that GDP growth accounts for inflation in its reporting, thus providing a misleading picture at times.