Forces of Market

Forces of Market

INTRODUCTION:

There are three forces in market which drives price of shares.

            1.Economy force(Index)

            2. Sector force(Sectoral index)

            3. Company force (Company share price).

You can say Force I , S , C

Nifty 50 Index, Sector index e.g. Pharma, IT, Bank indices

For each company,the share price has ALL 3 forces in different proportions.

Investors must know these forces to take proper decisions

When stock price fall down, don’t panic.

            First finds out which force is Acting.

                        Whether its Index force

                        whether its Sectors force

                        whether its company force.

            If its Index or Sector force then No need to panic.

            That means all stocks in sectors are falling then don’t worry.

But, Only one company is falling and Rest of the Stocks are not, then you need to Find reason for it

You can find out the Beta of stock to measure degree of fall.

Beta of stocks is the Rate of price change in particular stock as compared to Index.

If stocks falls 2% if index falls 1% then beta is 2

Beta= Covariance of Stock & Index /Variance of index

LESSONS LEARNT:

1. High beta suggests volatility of the stock

2. Usually smaller the company, larger the beta

3. Beta is one criteria of stock selection which Everyone must know

4. The ratios or parameters that are used to compare a stock and the respective sectoral index

            Co Variance

            Correlation

            Beta

5. High beta  does not mean problem.

            Beta is reflection of market cap.

6. Company having 300 Cr market cap needs small amount to double price hence more volatile.

Our Wealthcon group can also move small cap company.

            Large cap company price movement is difficult because we need large funds to move price

7. Beta is not Permanent.It changes daily

8. Alpha

            1. Alpha is used as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market return over some period.

            2. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement as a whole.

            3. The excess return of an investment relative to the return of a benchmark index is the investment’s alpha.

            4. Alpha may be positive or negative and is the result of active investing.             5. Beta, on the other hand, can be earned through passive index investing.