Stock volatility is an unbeatable fact of life on Wall Street. It is due to a number of driving factors determining direction of stock prices.
According to a study conducted by MSCI Barra, the most significant factors that drive long-term equity returns are inflation (4.2 % points of MSCI World Index), dividend income (2.9 % points of MSCI World Index, Real book value growth (2.1 % points of MSCI World Index), price-to-book growth (1.5 % points of MSCI World Index).
These factors can move a stock price either up or down from current levels. However, the most predominant factor is usually the winner in affecting the share price of a given equity.
If you are successful in identifying that factor then perhaps you can build an ideal portfolio of outperforming stocks. Your stock allocation is the key secret to beat your competitors in the share markets. Here are 10 biggest factors impacting direction of share prices:
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(1) Fundamental Factors
It is one of the biggest driving factors determining direction of stock prices. Stock market may price a share wrong from time to time. It can make a stock either undervalued or overvalued during certain time.
However, in long term the market price of a stock tends to move towards its ‘intrinsic value’, also known as ‘true value’ of a company.
Fundamental factors can play a significant role in determining true value of a stock. They can provide valuable information about an understanding of a company, health of its business operations & its future growth prospects.
Some of the best & popular fundamental factors that can affect its stock price include Earnings Per Share (EPS), Profit Margins, Return On Equity (ROE), Profit/Earnings ratio, Profit/Book Value, and Assets & Liabilities.
Thus, a stock with strong fundamentals but undervalued stock price as compared to its intrinsic value is a good investment opportunity.
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