Read? Why does stock price move?
And more ideas from Jeff Augen ...
Investors often make the mistake of assuming that they have unique insights that market has failed to recognize. They buy stocks that they believe are under-priced, or they purchase high-yielding corporate bonds because their instincts tell that the risk of default is exaggerated. In the worst cases, these mistakes evolve into an an investment strategy.
Unfortunately, the investment community tends to overuse the words "under-priced" and "over-priced." Strictly speaking, a financial instrument cannot be under priced unless the market is inefficient. The opposite is generally true; market tend to be very efficient, especially with regard to pricing of heavily traded stocks that are closely followed by large institutions. An investor who believes he has discovered a discount would usually be better off assuming that he has missed something. Humbleness is the most valuable attribute an investor ......
