What moves share prices? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

What moves share prices?

Mar 19, 2009

The prices of stocks constantly fluctuate as buyers and sellers haggle towards a mutually agreeable price to buy or sell at any point of time. But can it be that the fundamental worth of each of those companies is actually changing every minute? And is that fundamental worth the only thing that determines the changes in the prices of stocks? Well, the prices or the quotes on each stock that you regularly get are there in black in white for everyone to see. There's no ambiguity on that. However, the factors that actually cause those continuous movements are hardly ever given enough thought. A discussion as such can throw up some interesting observations.

And who better to turn to than Benjamin Graham, fondly called the father of value investing. As always, his uncanny knack of throwing light on the most esoteric of subjects related to stocks can be of great help.

Graham asserted that the influence of purely objective analytical factors on the price of a stock is both partial and indirect. Said to be partial because it frequently competes with other purely speculative factors which influence the price in the opposite direction. And indirect because it acts through the intermediary of a person's sentiments and decisions.

Let's get into a little more detail.

One set of factors that have an influencing effect are 'intrinsic value factors'. Graham's definition of intrinsic value is that value which is justified by the facts. Thus, these factors would include things like earnings, dividends, assets, capital structure, terms of the security etc.

Another set of influencing factors are 'future value factors'. These include things like management and reputation of a company, competitive conditions and prospects, possible and probable changes in sales, margins etc.

A third set of factors are solely 'market factors'; technical, manipulative and psychological.

Out of these three, only intrinsic value factors can be called purely objective and investment oriented. Future value factors are both investment oriented and speculative to some extent as they are more open to subjective interpretation. The third set of factors, market factors, is purely speculative. It is all of these together that determine the attitude of the masses towards the stock of a company. This attitude in turn leads to various bids and offers put in by buyers and sellers on the stock exchange, which ultimately leads to the market price.

In light of all this, it is no wonder that Graham was of the opinion that the market, at least in the short term, is not a weighing machine, on which the value of each share is recorded by an exact and impersonal mechanism, in line with its specific qualities. Rather the market is a voting machine, wherein countless people register choices which are the product partly of reason and partly of emotion.


Equitymaster requests your view! Post a comment on "What moves share prices?". Click here!

  

More Views on News

How Much Money Should an Investor Set Aside for Trading? (Fast Profits Daily)

Sep 21, 2020

In this video, I'll give you a simple equation which you can use to decide how much money you can set aside for trading.

Kotak Standard Multicap Fund: Strategizing Growth with Focused Approach (Outside View)

Sep 21, 2020

PersonalFN's analysis on the features and performance of Kotak Standard Multicap Fund.

Sensex Can Go to 25,000 Before it Goes to 60,000. Are You Prepared? (Profit Hunter)

Sep 21, 2020

Am I expecting a big crack in the Sensex and what next?

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

Sundaram Bluechip Fund: Will Hold the Stable Horses (Outside View)

Sep 18, 2020

PersonalFn briefly outlines the newly launched NFO note HSBC Corporate Bond Fund.

More Views on News

Most Popular

Benjamin Graham Deep Value Stocks

The insights from a man who pioneered arguably the most successful form of investing there is.

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why am I Recommending Caution? (Fast Profits Daily)

Sep 9, 2020

This is why I have changed my short-term view on the market.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Sep 21, 2020 (Close)

MARKET STATS