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What Is A Stock's Fundamental Worth?

What Is A Stock’s

Fundamental Worth

By

Mario V. Farina

Copyright 2016 Mario V. Farina

Shakespir Edition

Shakespir Edition, License Notes

All Rights Reserved

No part of this book may be reproduced or transmitted in any form or by any means,

Electronic or mechanical, including photocopying, recording or by any information

Storage and retrieval system, without prior written permission of the author.

Correspondence may be directed to:

Mario V. Farina

Email: [email protected]

What is a Stock’s Fundamental Worth? One answer, easy to understand, is: A stock is worth whatever people are willing to pay for it.

 

While the stock market is open, the price of a stock constantly moves up and down. There are many reasons for this. The reasons are easier to understand when one realizes that, at any given moment, there are many individuals and organizations buying and selling the stock for various reasons. Many hope that the price will go down so that they can buy at a lower price ; others hope that the price will go up so that they can sell stock they own at a higher price.. Speculators purchase stock hoping they will be able to sell it later at a higher price. Others borrow stock and sell it hoping that they will be able to buy it back at a lower price. They will then return the stock they borrowed. Many individuals, who are not speculators, desire to purchase stock as a long-term investment. Many need to sell stock they own to finance personal endeavors. These activities, and others, happen at random times. Each transaction affects the price of the stock, even if only in a small way. There are many factors involved in the moment-to-moment variations of stock prices. Some cause momentary rises in the price of a stock ; some momentary drops. There are emotional reasons also that cause the prices of stocks to rise and fall. It’s been said that fear and greed have a great effect on the prices of stock.

 

Some events that cause stock price movements are easier to detect. The stock market reacts to surprises. If a company suddenly reports that it has lost an important order, the price of its stock should drop. The opposite is true. If a company unexpectedly reports the receipt of an important order, its stock should rise. If it is discovered that a company has been illegally exaggerating its earnings, the price of its stock should fall. If a company should report a loss for the year when everyone had been expecting a profit, the price of its stock should go down. The reverse would, of course, be true. Unexpected news, good or bad, usually causes a definite reaction in the price of a company’s stock.

 

You should know that logic has little bearing on what the stock market does. What should happen and what actually happens with various scenarios is not always the same. If you act on what you believe should happen when an announcement is made, you might be disappointed to observe that the opposite actually happens. Some people make it a point to always do the opposite of what they believe everyone else is going to do.

 

There is no mathematical formula that tells you what a company’s stock is worth. You can consider historical data, the state of the economy, the political situation, the effect of the company’s com petition, etc., but find that the prices of stocks lead a life of their

own. Two companies, seemingly alike in many characteristics, may have different price reactions to various events. One may react strongly ; the other not be affected at all.

 

What does all this mean to you? Don’t try to figure out the market. Many people have tried to do this and have failed.

 

Over the years, you’ll hear a great deal of prognosticating about how the prices of certain stocks will behave. Or, about how the stock market, in general, will do so. Take these comments with a degree of skepticism. These people will be right half the time and wrong half the time. And being right half the time is not good enough when you invest in the stock market for your retirement. You have to be right far more than half the time. Stick to your plan. You are investing in the very best stocks for the long term because you believe this gives you the best chances for success.

 

Here is a bit of advice that may serve you well : when the stock market has been going in the right direction for you and has been doing this for a long time, and you may begin making charts showing how wealthy you will be at various times in the future, beware! This may be the exact time when the stock market will begin going the other way. And on the reverse side, if the stock market has been sinking like a rock and this has been happening day after day for a long time, and you’re feeling ultra-pessimistic, even wondering if stock investing was a good thing after all;, this is the time when things may be ready to turn around. What does all this mean to you? Understand that these emotions are normal. Resist taking hasty actions during times of ebullience and during times of pessimism. Stick to your plan.


What Is A Stock's Fundamental Worth?

  • ISBN: 9781311808158
  • Author: Mario V. Farina
  • Published: 2016-06-13 21:35:06
  • Words: 898
What Is A Stock's Fundamental Worth? What Is A Stock's Fundamental Worth?