Over the long run, the primary driver of a stock's market value appreciation is the growth in its underlying intrinsic value, specifically its earnings per share (EPS). This simple but profound concept grounds investing in business fundamentals, treating stocks as ownership stakes rather than speculative tickers.

The public instinctively places every company on a story arc with a rise, peak, and fall. Founders must actively shape the perception that their company is still on the upward slope. Being seen as pre-peak inspires confidence, while being seen as post-apex invites negative assumptions.

Intrinsic value shouldn't be confused with a 12-month price target. It is a calculation of a company's long-term worth, akin to a private market or takeover value. This stable anchor allows investors to assess the "margin of safety" at any given market price and ignore daily noise, rather than chasing a specific trading level.

Unlike physical sciences where observation doesn't change the subject, the stock market's behavior is influenced by participants watching it. A market can rise simply because it has been rising, creating momentum loops. This "self-awareness" means price and value are not independent variables, a key distinction from more rigid scientific models.

Investment gains often come from "multiple expansion," where the market's perception of a business improves, causing it to trade at a higher valuation. This sentiment shift is frequently more impactful than pure earnings growth, and underestimating it is a primary reason for selling winning stocks too early.

The primary driver of market fluctuations is the dramatic shift in attitudes toward risk. In good times, investors become risk-tolerant and chase gains ('Risk is my friend'). In bad times, risk aversion dominates ('Get me out at any price'). This emotional pendulum causes security prices to fluctuate far more than their underlying intrinsic values.

Companies like Tesla and Oracle achieve massive valuations not through profits, but by capturing the dominant market story, such as becoming an "AI company." Investors should analyze a company's ability to create and own the next compelling narrative.

Investors often invent compelling secular narratives—like a permanent housing shortage or "Zoomers don't drink"—to justify recent price movements. In reality, these stories are frequently post-hoc rationalizations for normal cyclical fluctuations. The narrative typically follows the price, not the other way around, leading to flawed trend extrapolation.

The fall of Valiant Pharmaceuticals illustrates that even sophisticated investors can be duped. A charismatic CEO's compelling story, combined with the powerful social proof of a rising stock price, creates a reinforcing narrative that can cause diligent investors to ignore clear warning signs.