What effects the price of a stock?

Did you ever hear a "stock pickers" rational for picking a stock?

Have you heard the "efficient market theorists" say you can get the same (or better results) by throwing darts at a newspaper?

Well, the reality is closer to the dart thrower's version, but not because the markets are efficient - because the future is unpredictable.

Below is a list of just of few of the risk factors that will determine a stock's future price. How many of them do you think are predictable?

  • Market trends
  • Industry trends
  • Political events
  • Business issues
  • Technological changes
  • Geological (i.e. earthquakes)
  • Weather (hurricanes, cold or heat spells)
  • Cost of energy
  • Product
  • Materials
  • Management error or bad decisions
  • Competition from traditional or non-traditional sources
  • Interest rates
  • Inflation rates
  • Value/obsolescence of inventory
  • Condition of manufacturing equipment
  • Value of buildings and land
  • Access to and cost of insurance
  • Theft or dishonesty
  • Regulations by government
  • Political risks
  • Currency risks
  • Labor shortage and relations
  • Stockholder activists (proxy)
  • Brand erosion
  • Consumer fads
  • Credit ratings
  • Winning new or losing existing customers

The quatifiable stuff - discounted cash flows and dividend discount models, liquidation value, going concern value - those are easy, but provide just a portion of the information you need.

No comments: