Ok, for this example let's assume that a company is worth 1000$ and I buy a stock which is 1% of it aka 10$, so my stock is currently worth 10$. If the company doesn't fall to zero worth then my stock will always have some value right? even if it's less than its initial value. E.G the company worth is falling to 100$, so my stock should now worth 1$ right? If my goal is to show a profit in the short term then it's understandable that such investment will be risky because there will a lot of volatility regarding the worth of the company. However, if I wait long enough wouldn't the company's worth surpass the 1000$ thus my stock will improve its worth and show a profit? I understand that some companies will bust but what if the company you invested is a titan like Amazon or Microsoft, isn't it guaranteed that you will show a profit in the long term? why do people lose money buying equities from these companies? aren't these stocks guaranteed to rebound even if they lose value in the short term? Generally, why people lose money when they buy stocks and hold onto them? can a market never rebound or you might miss the timing when it does? can the Us dollar go down for a specific time and never move up again? Why 99% of retail traders lose? As long as a stock retains some value it should survive and then if you wait enough it will rebound assuming that the company doesn't bust and is a serious company. Am I thinking something wrong?
Theory - your measuring the book value and the market could be very different. The market should include supply/demand, capital asset pricing of the expected forward cash flows(CAPM), the market activity(BETA), the valuation of the industry group and a number of metrics that different folks are going to be estimating. Not as simple as just book value. Another consideration is your view and valuation and could the money be better deployed elsewhere?
No. Imagine you bought in at company X's IPO and the stock falls 50% following the release of the lock-in period. It rallies briefly, but never gets back to where you purchased it. This, combined with inflation, will lead you to an almost certain loss. You're forgetting the market determines the price. A stock's chart is basically a supply/demand curve.
The need to fix losses can be stipulated by liquidity preference - for some of investors equity market investments are the source of income they live on, and they may took losses if they need money for every day needs. Second reason is of course speculations. Third reason is the demand of your clients - you have to fix your results and show what you have achieved in a month or in a year. Otherwise I don't see a problem of holding stock indefinitely and you may be right, QEs as a response to next recession will ensure that asset bubbles will continue to inflate.
There is no reason why an individual stock price should rise more than it should fall. The market as a whole has an inherent positive buoyancy, but that's because by stock market performance is normally meant the performance of key stock market indices such as the Dow Jones Industrial Average. All stock indices have a certain limited number of members and poorly performing members are booted out and strongly performing new members are brought in. So the index value tends to rise. In practice, 8 members of the 30 in the DJIA 10 years ago this month have been ejected - Alcoa AT&T Bank of America Citigroup GE GM Hewlett-Packard Kraft Foods There's no denying these were then huge titan companies, but where are they now?
You make alot of incorrect assumptions. Stock prices rise and fall for a number of reasons and let's forget for a moment investor sentiment. If the management of the company are inept or the directors are self seeking, if the company has low barriers to entry, has many competitors, or the company is using old technology, eg bricks and mortar retail shopping, there is every chance stock price will never recover. The company may be a gold mining company but if the mine depletes and directors decide to raise more capital, shares are diluted. There can also be instances where share price is deliberately driven down by savvy manipulators, once down a takeover offer made, you may not get your initial investment back. If a company is hit with a scandal then price may tank, customers desert etc. Lots of reasons a company price can fail forever. Just the fact a company does not post financial results in a timely manner can be cause into trading suspension. The stock exchange can permanently suspend a company if deemed insolvent.
Are you saying that a stock's price is independent than the company's true equity worth? E.G. In the above example if the company was worth 1000$ and I bought 1% of it (10$), I could pay a different amount than 10$ that the market dictates this stock worth, also no matter how the company was performing, the market players would still be the one to judge the worth of the stock which again is not necessarily based on a fixed value? (company's wealth) E.G. I bought 1% for 10$ and a scandal brought this stock's value to 0$ even though the company's value has remained at 1000$. I guess several events affect the perception of a company's wealth even if the wealth doesn't change itself and these events can kill stocks? Assuming that you only make money when you sell your equities and that the market decides the price instead of the real value of a company then ok, a stock can drop to zero just because the market believes this and then you lose money. I suppose holding onto them could be bad because you lose time and because it may never rise back to the initial price. Ok, I suppose there are many parameters taken into account but who is the one that lists the current price of a stock in the market? Lastly, what about currency trading? isn't this different than stock trading? How unpredictable is for a currency to rise or fall in value and remain there? could two different currencies fall or rise at the same time which would keep them at the same level against each other
Whether it is stocks, real estate, automobiles, it is a bid/ask world and current price is last price traded. As far as making money in stocks, best to trade with it's trend and when trend has reversed, you either get out or sell short. Those who bought in 2009, has racked up capital gains and dividends, there are more ways to stay in the long dealing with hedging if stock continues to pay good dividends. Just understand, dealing with hedging, best to be very experienced doing so or you can end up losing more than making.
There's a thing called 'survivorship bias'. When you see the market going up, it is not necessarily so. There are countless scores of listed companies which have been wiped out. They disappear, new ones replace the dogs, the dogs quietly slip below the surface, never to be seen again.
Currency trading, or forex (foreign exchange) trading is all I do these days. It is possible to draw conclusions from the fundamentals of global economics - at least the factors that affect currency exchange rates, which is what forex traders are betting on. But in the absence of fresh and unexpected new newsflow, it is not possible to use these factors to determine the direction and strength of the change in exchange rate over the next 5 days. The outcome will be random. Technical analysis will give a 60 or 70% accurate guess. TA works just the same on forex charts as stock charts as index charts as commodity charts.