Page 57 - Phonebox Magazine September 2012

The valuing of shares in a publicly quoted company is a very complicated issue. It should be simple in theory – the company is worth the total of its assets less its liabilities, with an adjustment made for the expected future profitability (or loss). The first two of these can be calculated fairly accurately but the third component – future performance – has what appears to be an almost endless number of factors and often differing opinions.
Even taking the above into account, one thing should never be forgotten, the stockmarket is aptly named as, at the end of the day, it is nothing more than a market. Shares, as with houses, are simply worth what someone is willing to pay for them! The stockmarket, at its most basic level, works on supply and demand and if shares are in demand they will go up in price. The demand for them will, however, be led by the factors above.
Share values fluctuate daily based on global factors that usually affect all shares, in the same way, on any given day. For instance, we have recently seen major concerns over the ability of Greece to service its debt and on those days that information seemingly confirming this has come out, the market has fallen heavily with virtually all shares moving negatively.
The amount of shares being bought and sold also tends to affect how the market moves. During August, the amount of trading in shares fell to a ten year low in the FTSE 100 Index with just 547m shares changing hands on the 14th compared with more than 2bn traded just under a year ago. On 10th and 13th the volume was even lower with 467m and 411m respectively*. The FTSE 100 moved just 13.5 points during that 3 day period as a result.
However, on those same days some good news may have come out regarding an individual company or the industry that the company operates within. This news can often be overlooked on the bleakest days for the market but, over time, the good news does get factored in and the shares in that company can start to outperform the market generally. Equally they can, of course, underperform following bad news.
If you have concerns over your investments then please call us at Advison. Initial meetings are always free and we can also help you regarding your retirement planning strategies, ensuring they dovetail with your investment planning. See our advert below for more details.
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Advison Ltd is an appointed representative of IN Partnership the trading name of The On-Line Partnership Limited which is authorised and regulated by the Financial Services Authority. Registered (England) No. 5009271
* Source – The Guardian 15th August 2012
Phonebox Magazine 57