Confusions About (Indian) Stock Prices

“Why do stock prices rise? Why do they fall? Most people, including the vast majority of investment
professionals, think that they know the right answers to these two basic questions. They are usually quite
wrong.” Click Here To SKip The Introduction &  Read Sanjay Bakshi’s Article On Stock Price Confusion

Article Excerpts (Via Sanjay Bakshi)

“It is generally believed that stock prices are set by a relationship between supply and demand and that
management of a company can and should, market it’s shares in much the same fashion as any other consumer product. After all, if the number of shares is fixed, would not proper advertising create a new demand for shares and thereby increase the share price? Well the correct answer to that question is that while managements can succeed in fooling investors once in a while by through advertising, the market price of the company’s shares will eventually fall back to their true value.”

“The above confusions about stock prices exist in the minds of people because they do not really understand how prices are set in the market. Two investment authors have given the correct explanation: John Burr Williams gave the his explanation in his book, “The Theory of Investment Value” published in 1937 and Philip Fisher gave his explanation in his book, “Conservative Investors Sleep Well” published in 1975. Here are a few extracts from the works of both these authors which explain, as clearly as I have found anywhere, exactly how prices are set in the market”

“Both wise men and foolish will trade in the market, but no one group by itself will set the price. Nor will it
matter what the majority, however overwhelming, may think; for the last owner, and he alone, will set the
price. Thus marginal opinion will determine market price. Always some would-be buyers will be excluded
from ownership because to them the price would seem more than the stock is worth to them.”

Click Here To Read Sanjay Bakshi’s Article On Stock Price Confusion