Stock Market Advice Essay Example | Topics and Well Written Essays - 500 words

Stock Market Advice - Essay Example Efficient Market Hypothesis postulates that "only fundamental factors, such as profits or dividends ought to affect share prices" (Stock Market). But this is true only in an ideal situation - a perfect market - which is hardly the case. Over shorter periods, there are wide variations in stock prices on account of any number of reasons, some of which are not even technical in nature. The stock market is driven by investor confidence - and that is a matter of personal choice that cannot be predicted. The general mass of investors invests with a 'herd mentality'. Inexperienced players can rarely, if ever, 'time the market' and hence generally incur losses. Warren Buffet has said in his biography that, "...despite all this available information, [analysis, 'hot' tips, blogs etc], investors find it increasingly difficult to profit." He continues, "...Sometimes there appears to be no rhyme or reason to the market, only folly". The market crash of 1987, resulting in a 22.6 percent drop in t he Dow Jones Index, could not be traced to any specific cause, and is just one example of this 'folly'.Since timing appears to be the critical factor, it follows that one's holdings have to be monitored continuously. Non-performing assets have to be divested and new stocks acquired based on the intrinsic value of each stock arrived at after careful study and keeping in mind market sentiment. Investing in the stock market is not like investing in instrument offering fixed returns, where once the initial investment is made it does not have to be looked at again until its maturity. Some stocks may hardly show any movement, others may show steady appreciation, while others may have depreciated when it comes to selling them. Nevertheless, it is equally true that stocks as a general rule have almost always appreciated over the long term.