What are the basics of share market?
In the stock market, there are fundamentals, there are technicals, there are analyst estimates (rumours?) and there are emotions. The fundamentals determine the real value of a share based on company’s future prospects and past performance whereas the technicals try to predict the fair share price through statistical analysis. Emotions, gossip and individual preferences determine demand and supply of shares and determine the market price of the share. Then the investor would compare this price with either the fundamental value or technical value or analyst estimates to determine whether the share is undervalued and overvalued. Finally he will make the next trade (sell if overvalued and buy if undervalued) based again on pure emotion! The moral of the story is that even though there are many ex-post theories to explain the price movements of a share, there’s no robust theory to predict it (efficient market, eh!), as the trade is made not by rational machines but by irrational humans (Gr
