A Stock Market Primer on Value Disrupters
Stock market novices and amateurs are excited by extremes of valuation, but veterans and those with consistent records of profits and appreciation know that the real money is in forecasting trend disrupters. You are right if you believe that extraordinary appreciation of start-ups is rare, at least in accelerated terms, but being able to spot downturns in times can also yield benefits in today’s world of sophisticated derivatives. The name of the stock market game is to guess tomorrow’s movement before the crowd.
Though insider trading is rightfully banned, it proves the value of accurate and relevant information for timely investment and disinvestment decisions. Modeling is a legal and valid substitute for insider information. Though the stock market is notorious for its apparent fickleness and lack of rationality, expert hindsight can generally piece together the causes for abrupt discontinuities. Experience counts in stock market trading, so a habit of post-mortems of sudden value movements can make you, over time, an authority in predicting future valuations.
Few stock market professionals will admit to using astrology, though rumor mills have it that the best do consult soothsayers on the sly. However, no one needs to be obscurantist when it comes to forecasting stock market fortunes because there is a secret method to the madness for the discerning. This is not to say that the unexpected cannot happen, but it is possible through careful analysis, to reduce uncertainties in this regard.
Many changes in the performances of individual securities can be traced to macro-economic developments on the geo-political front, or to regulatory developments. New management teams and separations of key executives can also lead to new competitive equations. Technology is another driver of new trends in profitability and growth. It does take time and sustained effort to understand the inter-relationships, but the effort certainly pays off in terms of deep insights in to how valuations change on the stock market floor.
Do write to us and share your accounts of sudden changes in company valuation, and how you think they could have been foreseen. This applies to all securities on which value forecasting for profit is possible. We can all gain from such exchanges!