Share Prices and Price-earnings Ratios

The movement of share prices is governed by appraisals made by the financial community, and is sometimes disconnected from what is actually happening in the company. It should never be forgotten that an assessment of value by an analyst in one of the brokerages is a subjective matter. It comes from that person interpreting what is going on rather than necessarily reflecting what is really going on in the real world about us.
Many analysts lack the skills or the time to accurately assess the facts and as a result their judgments are frequently faulty.
Thus an individual share price does not rise or fall at any particular moment in time in response to  what is actually happening or will happen to that company.  Rises or falls are caused by the current consensus of the financial community as to what is happening and will happen regardless of how far off this consensus may be from what is really occurring or will occur.
As a result of the difference between the financial community’s appraisal of a company and the actual underlying facts, shares may be priced considerably lower than the facts warrant for a long period.
Steers and herds
The markets tend to play ‘follow the leader’, where someone steers a whole herd of investors away from the track of rationality.  Trends and styles dominate the financial market just as they do in the fashion industry.
The trendy investment is paraded to possible investors with all its positive attributes accentuated and irrational optimism pushes prices up and up.
Irrational pessimism t​….To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1

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