Price of a stock is a combination of
I. Current Fair Value
II. Future Value based on expectations - Genuine or Exaggerated
III. Premium the buyer is willing to pay or discount the buyer is demanding
* Current Fair value is primarily based on current profitability / EPS
* Future Value depends on the
a) future expectations or fears related to the company,sector and economy
b) the sustainability & growth/de-growth in business and margins.
* Premium or discount depends on the desperation of the buyer/seller based on sentiments and need.
Once a company has crossed its adolescence and youth
it more or less settles in 0-20% band of growth on a sustainable basis.
Too much of movement of the stock price from the fair value is a sure sign of pending reversal.
Being an investor is like buying a business.
If you just keep that in mind there are good chances that you will not make the wrong buy.
Hunting for a company, small or big, is a thrilling game!
All you need to do is get involved as much as you would when you choose your life partner!
If only you can find a company that is all set to become a frog from a tadpole and keep leaping....
If only you can accumulate shares of that company when the sentiments are down!!!
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