Market Facts

Market Facts

Successful investing today is very different from what it used to be. Consider five important facts:

 

  • No one can predict the market’s next move. It has always had irrational ups and downs. The Nikkei index, for example, hit an all-time high in 1990, at 39500, and then went down to 8000 by 2003.

  • Companies do not grow forever. In the present scenario, new companies enter the market and enjoy a premium status for a while, but usually disappear when they cannot adapt to the changing environment. Even large, rock-solid multinationals can have severe falls. Xerox and Nikon are examples of this.

  • Low corporate governance makes it difficult to trust balance sheets and profit-and-loss statements of companies. These statements are necessary to get a deep understanding of a company’s intrinsic value when investing based on fundamental analyses.

  • It is liquidity, or the money available for investment, that drives prices, not fundamentals. A particular stock may have a fundamentally strong balance sheet and may be making good profits for a long time but the price of the stock may not go up. It is very important to understand that the price is a determined by demand and supply or buying and selling. If investors are not interested in buying, the share price may never go up.

 

 

 

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