Determining the Value of a Stock
The Bull Hunters Guide
Hello Fellow Bullhunters
Let’s look at another excerpt from the Bullhunters Guide to get you a little more acquainted with the material.
How is a Stock Valued
If you could purchase a security such as a stock or bond, that would pay you a guaranteed $1000 a year for thirty years, how much would you pay for it. Clearly, you would pay at least $1000, since you would make your money back after only one year. Just as obviously, you wouldn’t pay $30,000 or more, because it wouldn’t make sense to pay $30,000 just to receive it back in $1000 increments over the next three decades. So the vaue of our imaginary security is between $1000 and $30,000.
Price Discovery
In real life, such a security would trade in the open market, and its price would be determined by the mutual agreement of buyers and sellers in a process called price discovery. But what if our imaginary security was selling on the open market for $20,000 - would that necessarily be a good deal. It would be up to you to determine what you thought $1,000 a year for 30 years was worth.
Fundamental or Technical Analysis
This part of The Bull Hunters Guide to the US Stock Market shows us how a security is valued but it is up to you to use your Fundamental Analysis or Technical Analysis to determine whether or not you think the price will go up or down.
When stocks are traded on the open market, the buyers and sellers determine the price of any particular stock which can change by the minute if not by the second, depending on how volatile the stock is. Remember too that the earnings and dividends of a stock are not guaranteed.
Being familiar with how the Stock Market works is always important to know as when it comes to trading, you have an overview and can learn to see why stocks go up and down which prepares you for setting up your trading rules.
Next week I will overview another section. By breaking it down, it helps to review the processes involved.
Keep on charging
Angela Recchia
Graduate Support
Universal Wealth Creation © 2004 - 2007
June 30th, 2007 at 6:09 am
[...] Determining the Value of a Stock Being familiar with how the Stock Market works is always important to know as when it comes to trading, you have an overview and can learn to see why stocks go up and down which prepares you for setting up your trading rules. … [...]
August 20th, 2007 at 1:55 pm
[...] Firstly there was the fictional account of Wal-Mart’s founding which showed us how a business is incorporated and the getting of private financing for this to be made possible. Then we discussed how a corporation operates, what its objectives are and what gives shares of stock their value. [...]
May 9th, 2008 at 6:35 am
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