PRICING OF STOCKS

"The best investment in the world is a lousy investment if you pay too much for it".
One of the most important things an investor must consider before he makes an investment decision is the price of the company.It is not the company that matters most,but the price at which you buy.This is because the price of the stock may not reflect the underlying realities of the company That is, a company may be underpriced or overpriced.
A stock is said to be overpriced when the price of the shares is higher than the underlying realities of the company.While a stock is said to be underpriced when the price of the company is lower than the potentials of the company.
This could be as a result of so many factors.It could be as a result of inadequate information about the company ,and a host of other factors.
The smartest way to make money from shares is to buy shares when prices are low and to sell when prices are high.For instance,an investor who bought a stock when it was selling at the lowest price will be better than an investor ,who bought the same stock at the all time highest.
HOW ARE PRICES DETERMINED
Price of stocks on the floor of the exchange are determined through the interplay of demand and supply forces.Price of stocks changes daily on the floor of the exchange.A stock that apreciates today may depreciates tommorow.A stock is said to appreciate when the price of the stock increases, while a stock is said to depreciates when the price of the stock falls.
It is, however,important to note that the fact that the price of a stock is depreciating does not mean the company is in trouble.It might be your own golden opportunity to reap huge and superb returns in the form of capital appreciation.Also, the fact that the price of a company is appreciating rapidly does not mean that the appreciation in price will continue forever.It might be your unique opportunity to exit the stock and move to an underpriced one.This is because the price of the stock might still come down,especially if the underlying realities of the comany does not support the increase in price.
Be wise!