# Market perception... not fundamentals



## ceasar73 (2 April 2009)

That market perception, not the prevailing fundamentals, determines
a company's valuation. It was the market's perception that drove the
stock from $4 to $40, not the fundamentals. 

who agrees?

ceasar73


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## Sir Osisofliver (2 April 2009)

ceasar73 said:


> That market perception, not the prevailing fundamentals, determines
> a company's valuation. It was the market's perception that drove the
> stock from $4 to $40, not the fundamentals.
> 
> ...




That's really sparse of detail Ceasar. Which stock? What ARE the fundamentals? What is the perception of the market regarding the fundamental characteristics of the company? Your question in it's current format is.. um kinda meaningless.

Give us an example

Cheers

Sir O


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## nomore4s (2 April 2009)

My question would be - What caused the market perception?


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## beamstas (2 April 2009)

If fundamentals set the share price for shares,i wouldnt be a technical trader!


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## Mr J (2 April 2009)

ceasar73 said:


> That market perception, not the prevailing fundamentals, determines
> a company's valuation. It was the market's perception that drove the
> stock from $4 to $40, not the fundamentals.
> 
> ...




But what influences that perception? Fundamentals are certainly part of it.


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## Knobby22 (2 April 2009)

Price is driven mainly by fundamentals. 

The actual price varies from the true price by what could be called an elastic band depending on market sentiment.

The main reason the price has dropped is that world trade fundamentals have changed unexpectedly. No one could possibly deny this.

Technical traders are delusional if they think that it is them that makes the market move.

They are really swing traders catching the ride as fundamental perception changes. They do not move the market. It is a good way to operate and make money though.


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## CanOz (2 April 2009)

Knobby22 said:


> Price is driven mainly by fundamentals.




What a load of Rot!

Price is driven by emotion, nothing more to be said on the subject.

CanOZ


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## Knobby22 (2 April 2009)

CanOz said:


> What a load of Rot!
> 
> Price is driven by emotion, nothing more to be said on the subject.
> 
> CanOZ




What crap.
Babcock and Brown went broke on sentiment.

The US and GBR banks went down in price because of sentiment. Dream on!

CSL has gone up 20 fold because of sentiment. Nothing whatever to do with increasing eps by 20 times.


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## CanOz (2 April 2009)

Knobby22 said:


> What crap.
> Babcock and Brown went broke on sentiment.
> 
> The US and GBR banks went down in price because of sentiment. Dream on!





Bah ha ha ha ha LOL!

So this means US house prices went up on fundamentals????

CanOz


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## Knobby22 (2 April 2009)

CanOz said:


> Bah ha ha ha ha LOL!
> 
> So this means US house prices went up on fundamentals????
> 
> CanOz




No, mainly fundamentals. Sentiment plays a small part only.
Cheap money provided by government to encorage house buying.
Mismangement of banks and executive greed for short term goals.
Lax money supply. Corruption. Too much debt. 

Fundamentals!!


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## Mr J (2 April 2009)

I'd say they all play a part, influence each other and tend to be significant in different timeframes. Current crisis: fundamentals and (greedy) sentiment lead to the crash, crash  creates negative sentiment, crash affects fundamentals, sentiment affects technicals etc.

Multiple factors, all should be considered.


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## CanOz (2 April 2009)

Mr J said:


> I'd say they all play a part, influence each other and tend to be significant in different timeframes. Current crisis: fundamentals and (greedy) sentiment lead to the crash, crash  creates negative sentiment, crash affects fundamentals, sentiment affects technicals etc.
> 
> Multiple factors, all should be considered.




Greed, fear, its all in the emotions. 

Fundamentals might account for the reason that supply is cornered etc., but emotion drives the price to unsustainable levels.

CanOz


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## beamstas (2 April 2009)

Knobby22 said:


> Price is driven mainly by fundamentals.
> 
> The actual price varies from the true price by what could be called an elastic band depending on market sentiment.
> 
> ...





LOL. LOL. 
Ok im going to try break this down nice and small.



Knobby22 said:


> Price is driven mainly by fundamentals.




No it isn't! How does that even work are you kidding? So you are telling me the balance sheet of most companies on the asx has halved since last year!?! You have to be kidding me!



Knobby22 said:


> The actual price varies from the true price by what could be called an elastic band depending on market sentiment.




And how does one determine the "true" price. I wish i knew! I'd be rich!!



Knobby22 said:


> The main reason the price has dropped is that world trade fundamentals have changed unexpectedly. No one could possibly deny this.




Change the word "fundamentals" to "perception"



Knobby22 said:


> Technical traders are delusional if they think that it is them that makes the market move.




Take a took at TAP oil on the asx and tell me that the breakthough of 90cents on the triangle there is from fundamentals. Technical traders do not move the whole market though. We play on the probability of an event occuring. Fundamentals do not move the market either!

Thanks for the discussion
Brad


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## beerwm (2 April 2009)

so whats driven stock prices down?
-fundamentals,

what has driven stocks down to the extent were they are undervalued?
-sentiment,

fundamentals point them down, sentiment drags them down.
-think about the BOOM/BUST cycle.

but like Mr J said, totally depends on the timeframe you are trading


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## ceasar73 (2 April 2009)

Mr J said:


> But what influences that perception? Fundamentals are certainly part of it.




Yep I agree Mr J.
sentiment mainly short term, fundamentals long term.


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## CanOz (2 April 2009)

ceasar73 said:


> Yep I agree Mr J.
> sentiment mainly short term, fundamentals long term.




Exactly, isn't that the beauty of the markets, there is something for every analyst. 

Take oil for example, there are long term fundamentals that will provide a fair price for oil, but it was greed, fear, and the US dollar that pushed the price up. Global economic growth slowed demand for oil and the US Dollar brought the price down and emotions certainly played a part in that dramatic fall. 

CanOz


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## johenmo (2 April 2009)

So apart from those companies who have a faulty model (Mr T would say BNB!) fundamentals moves the price to a general area and perception moves it about from there?  

When anxiety > perception of fundamentals, anything happens.

I bought some earlier on "good fundamentals" - they went down.  

AS someone once said, "perception is reality".  Can't recall who.


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## beerwm (2 April 2009)

I dont follow Ben Graham,

but i believe this is one of his quotes/sayings;

- In the short run the market is a voting machine, but in the long run it is a weighing machine -

so i guess on that quote 

- perception of fundamentals = short term price movement
- realisation of fundamentals = long term price movement


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## ceasar73 (2 April 2009)

Someone also said something like (Wyckoff I think) 'The market is made from the mind of many...' 

and the great Isaac Newton had a crack at it also...

'And back in the spring of 1720, Sir Isaac Newton owned shares in
the South Sea Company, the hottest stock in England. Sensing that
the market was getting out of hand, the great physicist muttered that
he “could calculate the motions of the heavenly bodies, but not the
madness of the people.”


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## skyQuake (2 April 2009)

Knobby22 said:


> Technical traders are delusional if they think that it is them that makes the market move.




But technicals _is_ trading the motions of others, mapping their actions...

And those that do make the market move do look at technicals and use it to their advantage (not necessarily to the advantage of trad t/a analysts)


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## ceasar73 (2 April 2009)

skyQuake said:


> But technicals _is_ trading the motions of others, mapping their actions...
> QUOTE]
> 
> How is this done??


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## beamstas (2 April 2009)

ceasar73 said:


> skyQuake said:
> 
> 
> > But technicals _is_ trading the motions of others, mapping their actions...
> ...


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## ceasar73 (2 April 2009)

Does it work for you beamstas?


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## beamstas (2 April 2009)

ceasar73 said:


> Does it work for you beamstas?




Does what work?

If i used every single indicator out there i wouldn't be a better trader.

What seperates the good traders from the bad is risk management, *NOT* indicators.

Brad


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## MRC & Co (2 April 2009)

Risk management keeps someone in the game for longer.

It does not seperate a good from a bad trader, timing does.

Technicals and fundamentals drive price, is that so hard to believe?


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## Mr J (2 April 2009)

I'd say sensible risk management is part of being a good trader.



> How is this done??




Beamstas said indicators, but I'd just say price action, since that also includes indicators (as they're based on price action). The price action tells you what's going on: market sentiment, strength, weakness, trend, reversal, noise etc. Every time the price moves, it gives hints, and when charted it tells a story.


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## kingcarmleo (3 April 2009)

GG makes a good point. My personal situation is this ; Stocks I plan to have in the short to medium term have a positive market perception e.g I hold ESG. Stocks I plan to hold in the long term have good fundamentals e.g I hold IBA. Finding a stock that has good fundamentals but not a lot of positive market perception won't make you money if your in for the short term, however if you are in for the long term the market will eventually realise the fundamentals and then develop a positive perception. Surely there is a name for this kind of lag effect, I'm going to call it " fundamental market realistation"


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## tech/a (3 April 2009)

beamstas said:


> Does what work?
> 
> If i used every single indicator out there i wouldn't be a better trader.
> 
> ...






MRC & Co said:


> Risk management keeps someone in the game for longer.
> 
> *It does not seperate a good from a bad trader, timing does.*
> 
> Technicals and fundamentals drive price, is that so hard to believe?





Nah

*APPLICATION* of ALL seperates the traders from the theorists.

Analysis (including timing).
Risk Management


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## pilbara (3 April 2009)

ceasar73 said:


> Someone also said something like (Wyckoff I think) 'The market is made from the mind of many...'
> 
> and the great Isaac Newton had a crack at it also...
> 
> ...



but Newton could only calculate the motions of 2 heavenly bodies, any more than 2 can lead to chaotic behaviour.  And even 2 bodies can make chaos
http://www.myphysicslab.com/dbl_pendulum.html

so when we look at large numbers, where "the market is made from the mind of many", we see an unpredictable movement caused by a small number of market participants, which is then magnified by the feedback of the multitudes acting together.


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## MS+Tradesim (3 April 2009)

pilbara said:


> so when we look at large numbers, where "the market is made from the mind of many", we see an unpredictable movement caused by a small number of market participants, which is then magnified by the feedback of the multitudes acting together.




Agreed. IMO, summed up well in Soros' theory of reflexity.


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## ceasar73 (3 April 2009)

pilbara said:


> but Newton could only calculate the motions of 2 heavenly bodies, any more than 2 can lead to chaotic behaviour.  And even 2 bodies can make chaos
> http://www.myphysicslab.com/dbl_pendulum.html
> 
> so when we look at large numbers, where "the market is made from the mind of many", we see an unpredictable movement caused by a small number of market participants, which is then magnified by the feedback of the multitudes acting together.




This is probably why Newton had no bloody clue when it came to the markets


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## MRC & Co (3 April 2009)

tech/a said:


> Nah
> 
> *APPLICATION* of ALL seperates the traders from the theorists.
> 
> ...




Application is timing.  

Buy and sell is application and that is timing.  This includes the timing of scaling in or out.

Risk management will keep you in the game, but timing can make a HUGE difference to your equity curve.  If you know how to TIME doing size not just when you buy or sell (i.e. what are your high probability plays) can make a HUGE difference to your overall profit.


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## MRC & Co (3 April 2009)

pilbara said:


> but Newton could only calculate the motions of 2 heavenly bodies, any more than 2 can lead to chaotic behaviour.  And even 2 bodies can make chaos
> http://www.myphysicslab.com/dbl_pendulum.html
> 
> so when we look at large numbers, where "the market is made from the mind of many", we see an unpredictable movement caused by a small number of market participants, which is then magnified by the feedback of the multitudes acting together.




If your going to mention a mathematican, why not mention Black and Scholes?

Some black boxes or quant analysts make a PACKET of money, just as many discretionary traders do, it's the ability to take in a multitude of motions of 'heavenly bodies', not just two.


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