How is the stock price of a company decided?

People are so confused with stock prices and the stock market. Every company has its own value and it is reflected in its stock price. There is a real business behind these complex products and these stock prices. First of all, it is important to know about face value and the trading price.

stock price

Face value

When there is no change in the price of business and it remains the same. For example, a company has 1000 shares @ Rs 5 a share. If the company increases the face value of its share to Rs 10 then the no. of shares reduces to 500 only. In the above procedure, the price of business remains the same. Face value can only be changed by the company. Whenever a company changes its face value, it has the same effect on trading price because of the circulation changes.

Trading price

If a company is listed on an exchange then its share price is determined by the supply and demand of the share. If more people are buying the share then the price goes up until it finds equilibrium. If more people are selling the share, the price of share falls. The trading price of any share is directly proportional to the profit and maturity of the company.

Must Read: How to Choose Companies to Invest In the Stock Market?

What happens to the listed shares?

An investor pays for the share that are the future returns a company makes. Company’s future plans and current business is subjective to its future returns. While the overall industry and economic situation play the main role in determining the share price.

How much return will you get?

Almost complete market research is based on how much money a business will make in the future.

Must Read: How much money do you need to invest in stocks market?

Two main methods for price estimation:

  1. Price-earnings method– It is the ratio between the current market price and trailing 12 months EPS (Earnings Per Share). This ratio shows how much will market pay today.
  2. Cash flow method- It is a popular method for companies that do not depend on much debt.

Calculation of present value

Present value= FCF/ (1+R) n

R= Discount rate

A discount rate is defined as the lowest rate of return from the investment. The rate which bank fixed deposit demands.

N= Number of years

Must Read: Share market investment tips for early-stage investors

In a determination of stock price, 2 factors play an important role.

  1. Forecasting of future returns

Future is uncertain and many opinions and predictions can be true. This creates different growth track for the company and people pays a different price for the same stock. This changes the company’s stock constantly.

  1. Manipulation

A business is not run by morally pure or most ethically people. There are corrupt promoters, news breakers, insiders, operators and so on. Many sellers and buyers take the price of a share to a new level where it makes no sense.

Conclusion

Many factors are responsible for a stock’s price. Stock price depends on the company’s business, how it is going and other factors. The demand and supply of the stock are also responsible for the stock’s price, how often investors are buying or selling the stocks etc. Here we have discussed many facts that are responsible for the stock’s price.

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How to increase capital through stock market?

Investors and general people are always on an outlook for quick and easy money which leads to riches and happiness. It is embedded in human nature to be constantly in search of some hidden keys to a treasure or winning a lottery ticket.

money

To make their dreams come true people buy lottery tickets or put money in those stocks which give unexpected high returns. Even it is a luck game and everybody cannot be lucky all the time. Relying only on luck is a foolish or desperate investment strategy to follow. In search for the success people often overlook the most powerful tool available that is time and compounding interest. To amass significant asset one should invest (not save) regularly, take a calculated risk, do not take an unnecessary financial risk, and let your money work harder for you over a period of time.

Few stocks will give you good returns and a few may make a loss. Here are few tips that the investor can follow to make the balance in his favor.

Purpose and time of the investment

You should first set time and the purpose for which you are investing. Ask yourself, will you be investing for six months, a year, five years or more? Secondly, are you investing for retirement, children’s college fees, purchasing a new vehicle, purchasing a new home, or build wealth for beneficiaries?

The stock market is volatile and there is no certainty that you will get the money when you need it. There are chances that your capital may not be available when you need it exactly. Hence it is always better to invest surplus money in stocks.

The growth in your stock portfolio depends upon few factors which are interdependent on each other. The capital that you invest, earning on your invested capital and time period you stay invested for.

In the perfect condition, you should start investing as soon as possible, save much as you can and invest in those stocks which give consistent returns that match with your risk tolerance.

Avoid leverage

The brokerage house gives you margin money to complete your purchase which can be nearly 50 percent of the purchase value. It is the use of borrowed money to execute your stock market strategy. The borrowed money ‘levers’ the result of price movement. If say you deal with your own money, whatever the profit or loss is yours. In case you margin money your profit or loss can double or even triple. It is not advisable to use margin money if possible avoid stock purchase on margin money unless and until you are too sure of the price movement.

Diversify your stock

It is better to diversify your share purchase which reduces the risk. You can diversify on basis of large cap, mid cap, and small capitalization companies. You can diversify according to sectors like banking, pharma, IT, mining, FMCG, etc.

If you want any tips regarding which stocks to invest in and for how long should you hold you can contact us. We perform fundamental and technical analysis and look into other factors before giving you any tip. Better still take the opportunity of a free trial by filling out the form.

Do you know earnings from stock market depend on your approach?

In lure of big money people are attracted to share market but let me caution you making money in stock market is not easy. It requires a lot of patience, a disciplined approach, sound research, and analysis apart from many other factors.

National-Stock-Exchange

The stock market is volatile and this has confused a lot of investors and traders alike. They are in confusion, should they buy, sell or hold on to the equity. There is no sure shot formula to succeed in the stock market, but there are few unsaid golden rules that will increase the chances of getting good returns.

Research before you invest

One should conduct proper research before investing in stocks and in actual practice, it is rarely done. Investors look for the name and brand of the company. Some have a preference only for particular industry or sector or brand and that is not the right way to put your money.

Only invest in the businesses that you have some knowledge about

Never invest simply in a stock instead invest in the business. When you buy shares you are a part owner of the company. So before you invest you should know what the company’s business is.

Never ever try to time the market

The stock market is highly unpredictable even Warren Buffett does not try to time the market, he does have his view about the price level an individual share can go (upside or downside). Majority of investors just do the opposite.

Avoid following the leader blindly

Usually, it is seen that the investor his highly influenced by his family members, friends, colleagues or acquaintance while investing in shares. Did they conduct an analysis before coming to the conclusion what to buy and what not to buy? Another tendency is to buy those shares that everyone around is buying, following the herd mentality. This strategy is sure to backfire. In Warren Buffett words: “be fearful when others are greedy and be greedy when others are fearful”.

Your strategy should have a disciplined approach

Volatility is a part and parcel of every stock market. It is seen that even in bull runs there are bouts of panic moments. In this volatility, many investors lose money even in bull runs. There should be a systematic and disciplined approach for generating good returns. Calculate out at what price you wish to buy shares and at what price you wish to sell them until then hold on to it.

Let not emotions come your way

Do not be carried away with your greed or fear emotions. Investors lose money because of their inability to control their emotions. The stock market is not the game for speculation. Analysis and proper calculations will create wealth for you; use your brain instead of your heart.

Let your portfolio be sufficiently broad

Diversification is the key to reduce your risk. Diversify your folio across different asset classes. This diversification depends upon your risk taking capacity. Also do not over diversify.

In case you need any help or have any queries regarding which stocks which should be bought or sold you can contact us and we will be glad to help you out.

How can intuition help to predict the share market?

Dictionary meaning of intuition is 1) the knowledge to understand something through instinct, without the conscious reasoning 2) without a conscious reasoning but only from instinctive feeling

intuition to predict

Must Read: All time stock trading techniques that you should follow

Acquiring knowledge without evidence, proof or logical reasoning can be called intuition. It is a direct access to unconscious knowledge. The ability to understand without the need for conscious reasoning. According to modern psychology, it can encompass the capability to know justifiable solutions to decision making. A stock advisory company can help you in affirmation to your intuition whether both are in the same direction or not.

Standing at the bus stop or at the railway station, if you observe person near you minutely, you can guess what all is going in his mind. Is he worried, happy, stressed out and things like that. As a human being, we can intuitively feel the other person’s feeling.

Many people have an intuition about the things that will happen in future. As an observant trader, you can read the market pulse by your intuition and experience. You can read and feel what other traders in the market feel about the events of the market that will unfold. Same things hold true for nifty future tips.

Must Read: How much you can earn from share market in India?

Many people do not realize that every human being has a varying capacity of intuition. Sometimes the feeling is so strong that it can be felt easily and strongly, and sometimes it is so feeble that one does not even realize it.

It so happens in share market that we plan to purchase certain shares but wait to reach our expected price. Once it reaches our expected we wait for it to go lower. It goes lower. We again wait for it to go still lower and keep on waiting to purchase at lower and lower prices. Then all of a sudden it shoots above our first purchasing prices. We fret and fume why we didn’t purchase at the proper time. Kept on waiting unnecessarily. The same thing also happens in commodity tips.

The same thing happens when selling. We keep on letting the prices move north and finally lose an opportunity to sell at the right time to get the best price.

Must Read: Why is research important in share trading?

Meditation helps intuition get stronger. Peaceful and free mind attracts more thoughts. It helps to judge things in a better way. One can calmly weigh both the pros and cons of the situation to come to a better conclusion.

How can intuition help to predict the share market?

Apply the logic of reading emotions and feeling to a crowd. While observing the crowd at share marketplace one can predict the behavior patterns arising. It can give you a rough understanding of what people are thinking. Like they do for nifty option tips.

Say on a particular day you felt that shares will be going down. But the prices go up. Based on your price observation and judgment along with your intuition in future, the price will fall. Though it may not happen at the same instant, it may take a day or two. Reading a stock market is something that needs to be done over a period of time.  Not to be based only on your experience or just plain assumptions.

Must Read: Why should you invest in blue chip companies?

The available indicators and technical tools are available to predict the market movement, but without intuition they have limitations. These tools do help and support your intuition, and by practice and constant observation, you can get the better understanding of the market.

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Share market tips from experts – why you need it?

Investor’s invest money in the stock market to make their wealth grow over a period of time. But it is not possible for everyone to observe stock market daily and keep a close watch. Or sometimes they may be confused about the market situation.

tips from experts

To aid them in their conclusion they require the help of experts. Below given is why one should go for share market tips and how they can aid them in reaching conclusion.

1. Avoid high risk and play safe

One of the questions which every investor has is how to make money without losing the investment or capital and how to manage risk. A very common question as far as share market is concerned.

As everyone knows that the share market is volatile and there is no guarantee that investor will make only profit/gains in his trades.

Must Read: Why is research important in share trading?

Share markets up and down movement which depends on supply/demand condition, are affected by many national and global events. This can be government rules and policies, schemes, floods and droughts, financial events etc. Also the performance of the company and the sector to which it belongs also play an important role.

It is not possible for everyone to read charts and analysis in a proper way hence a need for an expert or trading analysis providing company comes into the picture.

Experts in share market tips help the investor in avoiding high-risk shares and try to play as safe game as possible.

Must Read: How to start share trading with minimal risks?

Apart from the above, there are certain factors which have a major role are given below.

2. Return on the investment

Investors are on the outlook of shares which gives them better returns on their investments. But those who take decisions emotionally or in a hurry often risk their capital amount and diminishing returns on their investments. Getting better returns on their investments one has to rely on certified share market tips provider.

3. Keeping emotions in check

Keeping emotions balanced or under check is easy said than done. Investors dream of earning easy success.  Investors must see and face the market in totality. Experts in the field of stock advisory company suggest buying, sell or holding funds from time to time depending on the market condition. Maybe the script that one is holding because of emotional attachment may not be giving good or sufficient returns.

The experts provide tips either through SMS or call in case of sell or purchase depending upon client’s risk-taking tolerance and goal which is decided.

4. Maintaining average in up and down market condition

Most of the investors invest money in one go, especially the new ones. Experts always recommend investing in piece wise fashion. Say you wish to invest Rs. 10,000 then invest Rs. 1000, after a certain period another Rs. 1000 so on and so forth, 10 times.

In short, spreading your amount over a period of time. It applies to the selling of shares also. Sometimes the market trend is favorable and sometimes it is not. At the end of the day, things average out.

Must Read: Top ten day trading secrets for beginners

5. Identifying goals

Each investor has different goals for which he is investing. It can be children’s higher studies, going for a foreign trip, house or car purchase or anything else. The identifying goal for investment is an important factor. Keeping the goal in mind an expert will advise you regarding in which share you should invest in and what can be the possible return.

6. Stop loss

Depending on the shares, experts will guide you at what price should you put the stop loss order. So that, in case of prices spiraling downwards you can minimize your losses. Many people suffer a huge loss because they do not use stop loss order, and wait endlessly for the upturn. In bear market conditions stop loss can save you the day.

Must Read: What is a stop loss order in share trading?

7. Entry and exit points

Share market experts help you in identifying entry and exit points It is necessary that entry and exit points are rigidly defined. A right entry and exit point give you the gains, for which each and every investor hopes in anticipation.

 

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