Towards understanding stock Market

Understanding the movement of prices in financial markets especially stock market and foreign exchange market is really a complex phenomenon.The asset prices are generally dependent on not only the present conditions but also  future developments.This means expected price in future influences today price..

From Burton Malkiel I have learnt that  fundamentally there are two approaches towards valuation in stock market.First one is understanding the true intrinsic value of the stock.ie there is something called anchor which holds the value around a particular level.This comes under the firm foundation theory.

If only one could guess and estimate te true intrinsic value ,any large deviations from it, upward or downward will cause selling and buying and  continued flow of information will push the value  towards its true value.This simply means all the available information today about its stock valuation and the future prospects will together define the value of a stock at a given time.

This is not to suggest that fundamentals dictate the stock market price. John Maynard Keynes the greatest economist of 20 the century , a financial wizard observed that invariably professional traders and investors largely go by intuition. Perception and crowd behaviour..iethey don't bother much about firm foundation theory and stock market resembles like gamblers den.

It is called as castle in the air theory.

We shalll talk more at a future date