Why stock prices move (Part 2 – The Long Term)

At a glance An investor needs to remember that a stock price represents ownership in an underlying business Therefore, a “fair value” for a stock depends on the market’s projection of future business performance Wearing an optimistic or a pessimistic lens can provide large ranges for this “fair value” The opportunity for the calm investor is in not getting caught up in the overly optimistic or the pessimistic views and comparing a prevailing stock price with what would be a realistic price based on historical business performance “In the short run, the market is a voting machine but in the

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Why do stock prices move (Part I – Short Term)

At a glance Stock exchanges like the BSE and NSE facilitate stock trading by providing the platform to match buyers with sellers The key price-setting mechanisms buyers and sellers follow are “at limit” (setting a pre-defined price) and “at market” (taking whatever is the prevailing price) When more buyers look to buy “at market” the price trends upwards and when more sellers do the same the price declines An investor’s ability to deal with short-term price movements has a huge impact on her success or failure Imagine you walk into a street market in a large city… You’re thinking of

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