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Two methods of Stock Evaluation

One of the unfailing characteristics of stock market is its uncertainty. The economy of a Nation is strongly impacted by the happenings in the stock market, and vice versa. Both observe each other with studied application. Internet has brought about profound changes in the philosophy and working of the Stock Exchange. It is accessible to the common man, more than ever. The greatest service it has rendered to the investor is to dispense with his visit to the Exchange. Trading is done through the comforts of the drawing room of the investor; the only requirements are a computer and a net connection. Market predictions have become the way of life for an investor.

Researchers and analysts are divided into two camps. Those who are convinced that a mechanism can be evolved to guess the market trends and the second camp thinks otherwise! This camp believes that several existing factors and new ones influence the market in a given situation and accurate prediction is impossibility and market cares for none but its own trends. It is said that Stock Market adopts it own style of walk and reacts in style at the most unsuspected time by the investor. Tomorrow’s news today is only wishful thing, according to the second camp.

Two important methods for stocks evaluation are (1) Technical Analysis Method and (2) Fundamental Analysis Method. Technical Analysts depend on charts and graphs as for the price movements of the shares. They rely on the past statistics, for future predictions.

Fundamental Analysis of stocks

This is the study of the real value of a stock. If the present value is less than the intrinsic value, the share is recommended for purchase. This is the system, where the investors not only think how the market will shape, but have studied facts and analysis to support their decisions on investments. Here is a case of not mere hypothetical prediction on beliefs and eventualities. Investments are based on facts, on the basis of past performance and how the share will respond to the volatility/”title=”how to challenge stock market fluctuations” >market conditions. They work on firm foundation. Analysts study an industry, then a company and aim to compute the real value of the assets.  For this, the factors considered are variables like growth, the interest rates, the dividend payouts and finally the risk involved in the investments. The market strategy, the level of sales and the liability of taxes are also calculated. As opposed to Technical analysts, the fundamental analysts believe that the stock exchange is defined 90 percent by logical and 10 percent by physiological factors. This is the good system to follow for long-term investments.

Technical Analysis of stocks

The effort under this method is to calculate the future behavior of the market. The idea is to secure benefit for the investor by knowing the market’s future behavior well in time so that investments can be made when the going is good from the point of view of the investor. Timings, to sell and buy, are important to the students of technical analysis. The analysts try to identify the factors responsible for the changing attitudes of the investors and their enthusiasm to calculate the effects of different types of market forces.

The technical data that is employed to arrive at the decisions are, volume, price, variation in prices and their different levels, for each trading period.  Suitable charts are framed to decide the future price of a stock. Trends are identified on the basis of the facts derived from the statistical studies over a period. Analysts contend that demand and supply aspects in the stock market have a noticeable pattern and are often cyclical.

Rules of trades are formed on the basis of market environment. Notwithstanding their technical expertise, analysts under this category strongly believe that market behavior is 10% logical and ninety percent psychological. This is a case where an astrologer and a scientist work in tandem! One of the rare agreements between the two contending forces; the two opposing forces; the forces that do not see eye to eye with each other, normally! The analysts recognize the ‘follow the leader’ mentality of the investors.

In the final analysis, market when it wishes, outsmarts both categories of analysts.  Why and how does it do so? Nobody has ever found out since the Stock Exchanges came into existence!

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2 Responses

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