Sunday, 23 December 2012

How does the Stock Market work for the Value Investor?

Amy the Seller put a stop order to sell a company share at $65 per share.
Linda the Buyer put a market order to buy.
The transaction was matched.
The market price of the stock is now displayed on the board at $65 per share.

Does this mean the company IS worth $65 a share?


Did a couple of people trade it for $65 a share?

As a value investor, the answer is the latter.  The $65 is the trading price.  Just because a couple of people traded the share for $65 a share, this doesn't mean that the company is actually worth $65 a share.

Value investing is all about determining what the value of that share is worth and looking at what the price people are willing to buy it for or sell it for, and capitalize on these.

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