Human Psychology & Stock Market behaviour

Human Psychology & Stock Market behaviour

Time:- 15 Min

What if everyone wants a 5 star - Cadbury would have no option other than to increase the price of a 10 Rs chocolate to 30 Rs and if people still keep demanding the chocolate, then they may have to increase the price to Rs 50/-

This is the same way a stock Market functions... but as sometimes we go so crazy because of markets that we also want to buy the chocolate at 50 MRP while we know the real price is just Rs 10 ...It's the same way that happens in Stock Market.


Human Psychology:- We are quite driven by the market forces i.e. If everyone starts saying tomorrow that Chetan Bhagat books are quite intellectual then many of us would also start saying the same and some of us will actually start an argument on that point (I know that many of you would be disagreeing with this argument right now). In similar fashion, let's suppose there is a stock XYZ which is commanding the Market price of Rs 25/- and now everyone starts saying it's a great stock and everyone wants to have a pie of it, then there is no recourse but eventually price of this stock rising to 50/- and then 100/- and may be higher as well.

However, a good investor will study the stock and try to gauge the real value of that stock and then see is the market really valuing it properly or just making an extra valuation out of it.

Few techniques to find the real-value: - While there are a lot of complicated jargons to evaluate the real value of the company though I don't think any technique can evaluate any companies real value as it depends on a lot of qualitative and Quantitative data.

1. Read the other similar stocks: - You should definitely see the other stocks in that category i.e. If it's a tyre stock do see other tyre stock and their valuation If it's a low-cost housing then do see other low-cost housing companies. See, the parameters like P/E, change within a week and which is making the maximum movement.
The stock you are planning to invest can be an aberration though does it really have some strong reasons for the same or not.

2. Check the 52 W High & Low: - This is one of the most basic and fundamental components to check - how well this stock has behaved in the last year i.e. Has it really kept moving at the same pace at which it is moving now or was it falling continuously for the year. Most of the time, it will be able to give you a correct assessment of the potential of that stock.

3. Check the source of the news: - Stock Market do moves on the human sentiment though these sentiments are based on the news and most of the times, a lot of the news are just rumours. Therefore, it's always a great practice to go in depth and keeping digging until the time you are satisfied.





So, a great investor is one who is not influenced by the sentiment of the market or the people however with the real value of a company. 

Happy investing & Keeping reaping benefits...