• "The market is there only as a reference point to see if anybody is offering to do anything foolish. When we invest in stocks, we invest in businesses."
• "The most common cause of low prices is pessimism: sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer."
• "Stocks are simple. All you do is buy shares in a great business for less than the business is intrinsically worth, with managers of highest integrity and ability. Then you own those shares forever."
• "If the business does well, the stock eventually follows."

• Unprofitable startups which are burning through their capital need to have enough money to survive until profitability. For this reason, a cash infusion can often add more value to the company than its dollar amount, it can save a company from being virtually worthless. For example, if Amazon didn't have nearly a billion dollars in the bank, its market cap would fall by a lot more than a billion.
• Companies with strong stock prices are able to raise capital more cheaply through secondary offerings. Secondary offerings are certainly not new, but their popularity has more than doubled in the last five years, from $55 billion in 1995 to an annualized $138 billion this year (source: http://www.marketdata.nasdaq.com/asp/Sec3SEO.asp). Additionally, due to the tremendous recent increase in volatility, the strength of a company's stock at any given time can make a big difference in that company's ability to raise cash in the secondary markets.
• Public perception is affected by a company's stock price, and this in turn affects brand strength and customer behavior. Companies look at other companies' stock movements for guidance as to the overall strength of those companies' businesses. If a company's stock is strong and rising, other companies are more likely to want to partner with them and/or buy products from them. This is especially true for markets in which customers are making a large, long-term commitment to a vendor and need assurance that the vendor will survive at least as long as the customer needs them.
• Stock options are becoming increasingly popular as a tool to motivate employees, but they can achieve this aim only if the company's stock price continues rising. If the stock price drops, the options can become virtually worthless and employee retention becomes more difficult.
• Companies are more acquisitive than ever, and companies which have strong stock prices are able to acquire other companies more cheaply. As an extreme example: if a sufficiently large group of investors conspired to prop up a company's stock price, that company could use its stock as currency to buy other companies. Even if the company had no assets and no real value, it could grow into its inflated price through acquisitions. (Note that this extreme case is illegal, but some companies employ this tactic to varying degrees already, legally.)
• Average stock price per share is increasing. The stocks comprising the Nasdaq 100 now have an average price per share of a little more than 60, more than a 50% increase in the last five years (not adjusting for splits, obviously), as companies are waiting longer to split. They are doing this because they realize that some investors incorrectly correlate a high price per share with a strong company.
• Analysts tend to jump on the hot stock bandwagon, issuing a buy recommendation after a stock has already risen significantly, so a strong stock price tends to generate additional positive buzz. This is why companies going public often design their IPOs to jump the first day, believing that the PR a first-day pop generates is worth more than the money they leave on the table by underpricing their shares.
• There are now a lot more momentum investors than value investors. Momentum investors tend to buy stocks that have recently risen, and sell or avoid stocks that have recently fallen. Value investing is considered by many to be a quaint, old-fashioned strategy, partially because it's less glamorous than growth investing and partially because it hasn't been working very well recently.

1. For companies that aren't significantly affected by these factors, value investing still makes sense. Look for companies that aren't negatively impacted when their stock price falls well below their underlying value. For example: companies that don't plan to use their stock as acquisition currency; companies that have enough cash in their coffers to weather a storm and won't have to raise money in the public markets by selling shares while they're cheap (the recent cash positions of the Nasdaq 100 stocks can be found at http://www.marketsigns.com/nasd_cash.asp); and companies that don't give substantial stock options to their employees.
2. For companies that are significantly affected by these factors, if you try value investing, be aware of these issues and be sure to factor them in. Value investors often get hurt when they venture into the tech sector, and this explains why. Companies whose stock prices fall are at a strategic disadvantage for the reasons described above, and it can be a difficult hole to dig out of. If you do decide to shop for bargains in sectors that are affected by these factors, remember that the risk is larger than it otherwise would be, so in order for the investment to be worthwhile you should expect a larger reward to justify taking the larger risk.
3. If you're a momentum investor rather than a value investor, there are still lessons here. I've never been a fan of momentum investing, because it flatly contradicts what I felt was the most obvious rule of investing: if the price of something goes up, that thing becomes less of a bargain. But in light of the present discussion, it appears that this is no longer always the case. As the price of a stock goes up, it's possible that sometimes the value gets pulled up along with it. This might explain why momentum investing does sometimes work in the tech sector. However, I'm not planning to scrap my current investment strategy and replace it with a momentum-based strategy, because I suspect that the amount the value changes is usually less than the amount the price changes, so as the price goes up the stock still does become relatively more expensive, even if not by as much as it would initially appear. Similarly, I'm not recommending momentum investing, because it's too easy to over-apply the principle and jump lemming-like onto the latest big thing, forgetting that even in this new world, price is still affected by value, even if it sometimes takes awhile to overpower the upward momentum.
4. Think in terms of feedback loops. As part of your overall analysis of a company, think about how a rise or fall in price might affect the company's underlying value. Understand what these changes mean and incorporate them into your overall investment strategy before other investors do.

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