Stocks !!! What determines the value of a stock.?

Question

I recemtly started investing in Shares, my decisions are based on TV Analysis and co- worker suggestion. However i am skeptical about it. I do not feel contented about the way i invest my money . I have a few questions.
1, What determines the value of a stock. ( I think it's demand ,and financial performance of the company does not really matter ...Is that true.. )

2, Past Super mega performnace of a stock does not gurantee a level of security for the futur yeilds.How can we decide wether to invest in such stocks.

3, Are the TV guys really reliable. Becoz a lot of mnipulation can be done if the demand of a stock is huge ( I mean the dirty game )

Answer 1

Stock valuations are generally based on future cashflows and the expectation that the company will pay dividends. Realistically, you're correct. The value of any stock is the perception of the investors, or demand as you put it.

To answer your second questions, again you're correct. In fact, I would argue that recent mega performance is an indicator of average to under-performance in the future. The average expected return from stocks is roughly 11%.

As for the TV guys, if they're so great at picking stocks... why are they on TV and not managing a huge fund? Also, everyone else is watching the same thing you are so trying to jump into the bandwagon will usually result in some scrapes and bruises.

Answer 2

The value of the stock is determined on the famous supply & demand but the demand is also determined by look at the market capitalization of a company. Market capitalization if you do not know if the volume of the company.

Also... TV analysis NOT GOOD! I am not sure which show you are watching but I will take a personal experience from the show Mad Money. He was one night talking about Denny's as an amazing stock how it should be invested in, and how it's full of investors opportunites. I was interested because after a racial issue years ago I did not think it would be a good company for investment.. I was right, its not. They are in major amounts of debt, and other food restaurant chains have better possibilites for example.. McDonalds (MCD). Also the food corporations in the stock market really don't have huge opportunites anyways.

For your second question I am honestly not sure. But based on opinion the stock market has some wide security. I couldn't imagine that with all of the investors and jobs and money in the stock market that they wouldn't use all means of tight security.

Answer 3

When I look at a stock, for example Apple(aapl), which i own and got in at 82, i look at what past performance has done to the stock after earnings dates. Then I take a look at what kind of things that the company sells. If you haven't noticed, everybody is wanting an iPod these days rather than a bulky CD player. If the company has had a past of beating earnings, then i will bet that they will beat earnings again. Apple has beat earnings for some time now, and with their newly improved iPod Nano and Shuffle, I expect earnings to blow away predictions by about 15%, but that is just my perspective. I made over 50% just last year by this method and am expecting better results this year. About the t.v. guys, they have to put something on air every day, and not everything is going to be right. But if you are going to listen to any of them i suggest Jim Cramer. He helped me get a really good understanding about the stock market and how i works. He has made some great calls such as Toyota, Google, Goldman Sachs, and Sears. But don't take it from him. You have to do the research yourself and see if it is the right stock to own at the moment. If you are down on a stock position, do not just leave on a loss because the stock will most likely recover. For example I bought Garmin at 45 and it went to 41 and i took the loss, and never bought it back. Now it is creeping up around 55. Hope all this helps.

Answer 4

The value of a stock is simply based on the collective value the expected future return of that stock. That can be broken down into three parts, speculation, future stock price, current and expected dividends.
There a number of theories of investing, random walk, hueristics, NPV, etc.
Overall the stock market is considered a fair investment. Sure there may be insidering information, but if you buy a mutual fund your money is being managed by a professional with millions of dollars under their control, so in effect you become an insider.
Like most novice investors you probably are too focused on the "gambleing" aspect of stock picking. You should be focused on risk management and long term growth. For example put your money in three mutual funds for the long term.

Answer 5

1) Supply and Demand.
2) It's a lot safer to invest in a company with $50 Billion in the bank (Like Microsoft) than a company with $500 Million in debt (Like Sony)
3) No.

Answer 6

Yeah, it's all about demand. This can be influenced by performance, but things change. I wouldn't invest in stock. I'm too stupid and way too poor.