Do Stock Markets Reflect Reality?

Stock Market is an Auction Market

"In stock markets it's an auction market, and crazy things can happen."

Warren Buffett

Sometimes Markets Get Divorced from Reality

"Periodically, financial markets will become divorced from reality."

Warren Buffett

Stock Market is a Voting Machine

Stock Market is a Voting Machine in the Short Run

"But I think it is very easy to see what is likely ti happen over the long term. Ben Graham told us why: 'Though the stock market functions like a voting machine in the short run, it acts as a weighing machine in the long run.' Fear and greed play important roles when votes are being cast, but they don't register on the scale."

Warren Buffett

Wait for Your Pitch

Graphic Depicts Base Ball Player Swinging to Strike at the Pitch

The stock market is a non-called strike game. You don't have to swing at everything - you can wait for your pitch. The problem when you're a money manager is that your fans keep yelling, "Swing you bum!"

Warren Buffett

Related:

Warren Buffet's Wait for the Right Pitch Advice Video

How Stock Markets will Behave in 2017?

Stock Trader Gazing in attempt to predict the market

Dear Friend!

Thanks for asking the question that is constantly on the minds of a large number of investor population, “How the stock markets will behave in 2017?” Unfortunately the answer is not a simple yes or no but complex and length one as that the:

1. Markets are unpredictable
2. Predicting tolls like the technical charts are nothing but hocus-pocus
3. Making investing decisions based on market predictions could be highly dangerous
4. Value investor never attempt to predict market behaviour
5. Good investments can be made and money can be made during all market conditions

Great value investing gurus have repeatedly emphasised that it is futile to predict the markets. Investment decision have to be made based on the valuations (affordable prices) of stocks of excellent companies under various market conditions. If shares are available at a good discount to their intrinsic values buy them. Similarly, if scrips are traded at very high premium to the intrinsic value of the shares you bought at a discount, sell them.

Let us take the example of NMDC in our academic Portfolio 2K15 and analyse buy, sell or hold decisions under various scenarios as follows:

Table Shows Calculation of the Intrinsic Value of NMDC Share

As on 10th January 2017, the current market price (CMP) is Rs.138.05 and the decision is Do not Buy but hold as the share is not available at a discount and the CMP of Rs.138.05 is not too high compared to the intrinsic value of Rs.113.34 as well as our average holding cost in the portfolio of Rs.105.38.

If the CMP hypothetically was Rs.82.50 we would have bought the scrip as it is available at a discount of 27.21%.

On the other hand if the CMP hypothetically was Rs.282.50 we would have sold the scrip as it is trading at a huge premium of nearly 150%.

So my dear friend this is how value investors react to market conditions rather than predicting how the stock market will behave in the new calender year 2107.

Suggested Further Reading:

• How to Find The Fair Price of A Stock?
• How to Calculate the Intrinsic Value Shares?
• Predicting the Market Versus Reacting To It

Thank you,

With Best Regards

Anand

4 Types of Investing Markets - Video

Is the Stock Market Worth Investing?

Investors, especially those who have not yet invested in stocks are often tormented by the question, "Is the Stock Market Worth Investing?". On one hand they are anxious about investing in stock markets, having read or heard about high risks, but on the other hand they cannot ignore stocks as the returns they are getting from fixed deposits from banks are paltry and are eroded by inflation.

Risk:

Risk is inherent in every financial instrument, and stocks are no exception. Is it not a huge risk to save lifetime earnings in low-return bank deposits/ public provident fund (PPF) accounts, only to find that the accumulated savings are not adequate to sustain one's lifestyle post retirement? 

Electricity, which is such a universal, versatile and useful form of energy, can be highly risky if not handled carefully, but do we or can we avoid using electricity in our everyday lives?

Warren Buffett says, "Risk Comes from Not Knowing What You Are Doing", and he cannot be wrong for he has risen to the position of worlds second richest man, primarily from the stock market!

There is no doubt whatsoever that stocks and stock market is the only path for generating significant and enduring wealth.

Long-term 'Value Investing' is a sure and safe path to financial freedom and lasting riches.

However, investors are advised not to dabble in stocks blindly.

We recommend that you buy a copy of the book, "The Intelligent Investor", by Benjamin Graham. Warren Buffett cherishes it recommends it too!

I read this book and it changed my life and I am sure it will change yours too!

Two Ways to Invest in Stock Markets:

1. Direct investment in stocks of a handful of excellent companies that reward investors with bountiful dividends and long-term capital appreciation.
2. Regular investment in low-cost, well diversified, equity/ growth, index mutual funds/ exchange traded funds.

Recommended further reading:

I have answered similar and related questions many times before and instead of repeating them, I shall link you to such articles below:

• Can One Get Rich From The Stock Market?
• What is the Better Investment Instrument Between Stock and Bond?
• Is the Stock Market a Place to Make a Fast Buck?
• Is there a Special Benefit in Being Invested For a Long Time in a Debt Fund?
• How the Stock Market Works
• The Stock Market Explained Simply

In conclusion, the answer to the question, "Is the Stock Market Worth Investing?", is an emphatic and big YES!

Market Is Weird - Joke - Slide

Source:
Joke: http://sumo.ly/kRJs via @bms_
Picture: "Mr.Penguine" by Corenominal from Open Clipart

Market is Weird - Joke

The market is weird.
Every time one guy sells, another one buys, and they both think they’re smart.

Buyer and seller both think they are smart

Source:
Joke: http://sumo.ly/kRJs via @bms_
Picture: "Mr.Penguine" by Corenominal from Open Clipart

How the Stock Market Works - Video

The Stock Market Explained Simply - Video

Stock Exchange Slide

Bull Market Definition

Bull Market

Bull Market is a condition of the stock market when there is widespread optimism in the market, reflected in high prices of stocks. Often this enthusiasm is unjustified and the two crucial ratios, ‘Price to Earnings’ and ‘Price to Book’ shoot up and make stocks expensive for purchasing.

Many innocent investors enter the stock market at these high levels, lured by the possibility of making a fast buck.

For the discerning value investors a bull market is not the right time to buy but the best opportunity to sell the shares bought and painfully accumulated over a long period of time at lower prices and book profit.