Debt Help And Advice Blog

by: Daniel Webb

Naturally enough, most stock market investors want the value of the stocks in their portfolio to rise. The question of course is how to determine, before purchase and investing in stock market, the true value of a stock. The value of a stock will rest partly on whether it is likely to appreciate in value. Understanding whether such capital appreciation is likely depends on identifying the factors that could contribute to this.

At the risk of stating the obvious, let us briefly go back to the basics.

First, what is a stock or a share? A share is defined as a part of a company and the act of buying a share is considered as an investment, thinking that the company has the ability to generate profits in the future. Obviously, (in most cases) companies that perform well will see the price of their stock rise, and companies that perform badly are likely to see it fall.

Second, what is a stock market. A listed company in the stock market is composed of individuals who essentially have two objectives; One of these groups buy stocks in the company, while the other group wishes to sell these stocks to other buyers.

So what is the basis for linking the company’s performance to the value of its stocks? In fact, it seems that the linkage on some occasions does not exist because the market sometimes acts irrationally in the pricing of their stocks. Though, generally speaking, the price of a stock mirrors the “sentiment” of the market regarding the true value of the stock, whether it should be sold or bought. Where there is an excess of buyers to sellers for a given stock, that stock’s price will rise, and where there is an excess of sellers to buyers the price will fall, until (in both cases) equilabrium is reached. (It is important to note that stock price for a given company can fall even in circumstances where the company’s performance improves, for example in cases where the company, despite performing well, has nevertheless failed to meet the market’s expectations.Before choosing which company to invest in, it is important for an investor to conduct an investigation with regards to the company’s financial performance.

What are the rules for successful stock trading?

An investor’s own intellegent judgement is important for the success of his investment in the stock market. The mentality of simply “following the herd”, that is, following the investment patterns of other investors, does not bring success in the stock market.

So what kind of investment process elements are under the control of the investor? Try as they might, investors cannot exert any significant degree of control over the market. Only large financial institutions can affect the market in this way, and even those bodies only exercise partial control. Nevertheless, the way an investor acts in the market can be controlled through the use of their market information.

So what is the most effective way for investors to use market information to operate? The answer seems to be that investors should pre-determine logical rules by which they will operate in the market, and then dispassionately stick to those rules. In general, rules in society exist to control and modify the social behaviour. In the same way, an investor’s own rules can logically influence his or her own investment behaviour, and remove the “emotional” element from trading. For instance, a structure and pattern of the way a trader selects stocks should be guided by rules. Often it is the trader’s ability to stick to these rules that proves the difference between success and failure in the market place.

There will always be room in the market for beginners to learn about the principles of successful investing and to conduct meaningful stock market prediction. But it is important that all investors, whether experienced or not, access the best advice available to them (i.e. preserve the services of a respectable stock broker. There is no reason why those prepared to learn, to conduct research, and to operate in the market in a rule-based and disciplined manner, should not make profits from stock trading.

Visit my blog at http://www.savvyfinancialtraders.com for more information about investing in the stock market and grab some free ebooks and e-courses along the way.