How do Investor’s Perceive Value?

To help you understand what investors perceive a company to be worth – first take a look at its earnings or profits. Usually, the more profitable a company is – the more demand for the company’s stock there is. If a company makes no money, then there is no possible way they can continue to develop and grow – therefore investors don’t want to put their money into it. Professional investors spend their lives attempting to base the future value of companies on their current performances and this is really the best indicator that we have and although it is not always correct – it is the best indicator we have. Take OneTel for example, it shares were at $2.50 in 1999 and in the lead up to its collapse it shares were valued below $1. This just indicates that   investors could perceive that the company was in trouble, and started selling their respective ownerships which drove the share price down.

The best advice that anyone can give you into studying how the share price moves is to look at what investors perceive about a company – whether you do this by researching historical prices in the hope they predict future ones or by studying companies profits to see which one is better – investor perception is the underlying key to establishing whether the price will go up or go down.