Making the choice to get involved in the stock market is both one of the easiest and hardest decisions that many people make. Although it is a step in the right direction with regard to allowing your money to work harder for your eventual long term wealth, it can be risky and there are many different factors that have to be juggled all at once in order to make it a successful venture. One of the things that many people pay attention to is stock market price, and it’s important to remember that this is more than a term explaining how much you’ll have to pay in order to be able to own a certain security.
It’s a surprise for most investors to learn that stock market price can actually have two different meanings depending on the context in which they’re used. Technically speaking, this term can be used to refer to the quoted price at which investors are currently able to buy or sell a common stock or a bond. However, the term can also be used to describe the amount of market capitalization added to the market value of debt. It’s important to pay attention to the context in which the price is being referred to so that you’ll have a clear understanding of what’s being communicated about the stock.
In the context of value, stock market price is very useful to fundamental analysts because they are interested not only in what a stock is worth at any given time, but also what it is likely to be worth in the future. In case you’re not familiar with fundamental analysis, it is the process of researching companies and their financial histories to determine whether or not they have the potential to be profitable in the future.
In a very literal sense, stock market price is important to technical analysts as well, because they believe the quoted price visible in the market has the ability to account for all the qualitative factors that fundamental analysts spend so much time researching. Technical analysts spend time monitoring and evaluating the way that a stock’s price has fluctuated in the past, and use this information to help guide their decisions about which direction the stock’s price is likely to head in the future. Although this isn’t a method for seeing into the future in any sort of guaranteed way, it is one of the most successful ways to use the past to help determine the future.