Equity from an Informed Investor: 5

Equity from an Informed Investor: 5

While we will discuss different styles of investment, we would address some nuances of market and stocks for better understanding.

Market is sum of opinions and emotions of the players. That’s why market is never rational or predictable. Market’s nature is irrationality and volatility. This philosophy is well exploited by advertisers and politicians.

The reflection of this interplay of opinions and emotions results in the swing seen during the day, over a period of time, still further, is Bear or Bull phase.

Now during these various stages, the market or stock forms patterns based on universal intelligence, these patterns are believed to be predictable and hence applicable in subsequent situations. Technical chartist or analytics revel in interpreting the moving of market or share prices based on the chart it is creating. This has evolved as a science.   

The same pattern when remarked with share price or market index, results in Support Price or Resistance Price, Moving Averages. The universal market intelligence has determined that presently the unit price could not drop below the support price nor it would cross the resistance price. However, the opinions and emotions will keep moving the unit price between this range. Likewise the Simple Moving Averages obviously depicts the balanced or possibly saner price.

This has progressed to high tech software availability for chart plotting and this is what one sees on the TV screen and trading experts recommending. 

Short term movement can be roughly predicted based on the above, then, what about long term movement. There would be many factors; however one factor that seems consistent is that the price follows the growth in both Topline and bottomline of the company. For E.g. If the Sales & profit grows at around 15%, the share price too will grow at around 15% annually.

Market always reacts or discounts early to an anticipated change. That means the CMP of X stock has already factored in the 15% price. Depending on the general market trend, like the bull now, the market would have discounted the Fy15-16 growth too. Two things occur here in such situation, either time correction or price correction. Amidst this, stock price will react drastically when the unexpected happens.

Oosh! It’s too much today. But it’s essential & critical. It took years to understand the process & relationship of growth with price!  

Happy Investing,

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