Quote: (02-21-2013 10:54 AM)cardguy Wrote:
It seems impossible to know either way.
Think about it logically. For every share on the stock exchange. Those selling a stock think that stock will go down. And those buying a stock think the stock will go up.
And when a stock stabilises and stops moving up or down. That means the number of people who think it will go up is exactly the same as the number of people who think it will go down. So - it has an exactly even chance of going either way the next day.
Let me explain logically why this is wrong.
Generally, a price adjusts so that supply meets demand. People that must immediately sell get to sell, and likewise for buyers. This is called market clearing.
We see this same price mechanism in a wide variety of markets - not only stocks. And it doesn't logically mean that we don't know which way the price will go in the future.
For example, the price of mushrooms will vary according to the season. In a period of abundance, the price will go down. In scarcity, it will go up. Just because price has reached an equilibrium point today, it doesn't mean we can't predict which way the price will go in 6 months time. We have a high probability read on the way it will go because we know the seasonal calendar that is going to drive the yield.
Benjamin Graham said that in the short run the stock market acts as a voting machine. In the long run, it acts as a weighing machine.
What is weighed for a stock? Cashflow and earnings - past, present and future expected earnings.
The underlying asset of a stock is commerce, and commerce in general tends to make money.
When choosing a stock, we do so with imperfect information. But this shouldn't lead an observer to conclude that we can never make money.
I would advise the OP to look on other forums for investing advice. Also, only listen to people with a demonstrated record of success in the field of advice. Investing advice on RVF tends to be poor and uninformed.