Playing the stock market is tricky business. Sometimes it seems like prices fluctuate without rhyme or reason. Sometimes seemingly robust investment don’t pan out quite like everyone thinks they will. For example, the public trading of Facebook was expected to take the world by storm. Instead, an overvalued IPO (Initial Public Offering – or the initial price of stock) resulted in a lot of scepticism from Wall Street. In a shock fall, game developer Zynga – which works closely with Facebook – suffered a 40% drop in one day during 2012 due to missing its quarterly earnings.
The moral is that the stock market can be wildly unpredictable even at the best of times. For every devastating collapse in stock prices, there’s often a remarkable success story – and not always for the reasons you would expect. Among the many variables that can impact prices are viral videos and other eye catching stories that seemingly have nothing to do with actual investing.
Gangnam Style Going Viral
The music video for Gangnam Style, the hit song by South Korean artist Psy, has over 2.2 billion views on YouTube. When the video first went viral economist Andy Kim saw that the South Korean semiconductor firm DI Corp’s stock prices were on the rise. Well not just on the rise – the stock price jumped 800% in just 3 months! So what does K-pop have to do with electrical conductivity?
It happens that the executive chairman of DI Corp is Psy’s father, Park Won-ho. But it’s not as if his company was advertised directly by Gangnam Style. Nor was it looking at expanding, bringing out a new product, or merging with anyone. The jump in stock prices was simply due to investors being excited about the tangential connection to a pop culture phenomenon.
This is a clear example of an increase in stock price that isn’t reflective of a real increase in value. There was nothing relevant to the actual makeup/fortunes of the company that caused the stock price to rise; it was simply excitement surrounding Gangnam Style. When Psy came out with Gentleman – his second international hit – the stock price again jumped. The earnings of the company haven’t really risen, but the value of the company has.
Just remember, this video caused a semiconductor stock to jump 800%:
Too Sexy for the Stock Market
A viral video helping out dad’s company isn’t the only example of these sorts of jumps. Having a good looking CEO can also bump up stock prices. Unless the company in question deals in beauty products or plastic surgery, having the sexiest executive in the market doesn’t really affect products. Elon Musk – of Tesla and Space X – was named Business Insider’s sexiest CEO. Marrisa Mayer, the CEO of Yahoo, was featured in Vogue. Both these CEO’s companies experienced bumps in their stock prices as their executives soaked up the spotlight. And lets face it, it’s not like Yahoo has been taking the world by storm with their products recently.
What does it mean?
The point of all of this is that, even though it’s supposed to, the stock market does not necessarily reflect the real value of companies. Did everyone dressing up and dancing like Psy for Halloween help the singer’s dad’s semiconductors revolutionize the way we think about the foundation of modern electronics? No it didn’t, but Gangnam style did make investors excited to be associated with it. Even institutional investors got in the act, with one actually becoming the largest investor in DI Corp.
So while the success or failure of a new product might seem like the biggest factor in stock prices, we can’t rule out these seemingly unrelated boosts. Even though buying stock because the CEO is easy on the eye or because their son did a horse dance on the internet seems irrational, it happens – and the ways they affect the stock market are much too real to ignore.
Before investing, we recommend consulting an expert. Though moves such as these might be hard to predict, there are many other ways you can invest your money smartly and safely. For more information on this story, check out this report from the PBS Newshour.
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