A Bourse Diary

Thoughts on stocks, speculation and ... life

Thursday, December 15, 2005

Some More Basics

I probably must apologize to all more experienced readers about posting some really basic things about the stock market. Though, other ways, I have seen and heard not just a few traders, who of course know this basics, but still seem not have "internalized" them fully.
We talk about supply and demand. And this is the only postulate on the stock market. Prices are the result of supply and demand. Only. Everything else is interpretation.



The quotes coming on the ticker are real trades, and they indicate a real transaction which occurrs only if supply and demand offers meet. Thus, there are two sides of a transaction - somebody has sold and somebody has bought a stock at this certain price. If prices rise, this is only because buyers are willing to pay higher prices now AND there is no cheaper sell offer. And vice versa.
No news, no earnings ratios, no interest rates, no economic indicators actually determine about stock prices. As clear as it is, as often you can observe how people think of the (possible and "logical") way of the market as if it were "something" that must go up or down if the news is good or bad. They often also refer to the stock market as of barometer of the economic state. The bourse is no barometer. The bourse only measures the balance between supply and demand. You should really internalize this other ways you will encounter with countless "illogical" situations and reactions on the stock market. I know it sounds trivial, but this is the very essence of the stock market.

To get the future direction of the stock market right, you should get right where the future demand and supply (is likely) to come from. A share (or the shares as a whole) could be very "extravagantly" valued, if the shareholders are not willing and not forced by other mean to sale (notice 2 conditions, I'll come to this again) nothing will happen. The prices will stay high. And vice versa. The market could be severely undervalued by any criteria you can imagine, if there are no buyers enough to absorb the supply of the (fearful) sellers, the prices will sink further. Therefore it is often true for the short to mid term periods, that not the quality of the shares, but the quality of the shareholders is the determinative factor.

2 Comments:

At 2:13 PM, Blogger Aditya Kumar SIngh said...

Nice Blog...i love it... keep updating with fresh content, i will come back for sure.. and dont forget to visit my similar blog title "Successful Investing"

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At 2:13 PM, Blogger Aditya Kumar SIngh said...

Nice Blog...i love it... keep updating with fresh content, i will come back for sure.. and dont forget to visit my similar blog title "Successful Investing"

http://indiamf.blogspot.com

 

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Disclaimer: All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and are in no way intended to serve as personal investing advice and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Readers should not make any investment decision without first conducting their own thorough due diligence. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed.