Future Expectations: The Key to Stock Market Prices

The key fact to understand when gambling in the stock market is that financial prices are set by expectations of the future. It is this focus on the future which sometimes make investing so counterintuitive. So for instance, stock prices can go up on bad news, and go down on good news. More importantly, stock prices rarely reflect reality, since they are a function of the future, which is formed by our imagination. And since our imagination knows no bounds, there is really isn't any stock price that is not justifiable based upon some future scenario that can be conjured up. This is why it is best to not focus much on whether a stock is undervalued or overvalued, as the valuation is purely imaginary. It's more productive to always think about the future. Ask yourself: What's Next for this particular company and is anybody thinking of what's next? Too often the investing world is caught up in the recent past or the present, and is unable to focus what could happen in the future. This is when you can make money. Develop a future expectation, based on solid evidence, that is not currently shared by most investors and then hope that others soon buy into your fairy tale.