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Wednesday 23rd July 2008
One peculiar aspect about the stock market which many people cannot get their heads around is the fact that for every buyer there needs to be a seller and vice-versa. So if the markets continue to fall and the doom and gloom is not lifting, why are some people still buying into companies which look as though they are in trouble?
To understand the stock market you need to understand that historically the markets are said to take a 9 month view of investments. So in theory the price movement which you see today (in the event of unforeseen circumstances) is thought to be fair value in around 9 months time. While the ‘rule’ as such is not set in stone it is something which many investors have in their minds.
Therefore, if there is bad news today and a share price falls substantially you may see an investor buying on the way down, assuming that the fall is over done and there is value in the future. Of course it is not always as simple as this but the timeline which investors consider for their investments will differ from party to party.
There is also the basic fact that opinions make a market and if we all thought the same, what a boring arena the stock market would be! |
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