If supply and demand is the determining factor to control the price
change, then we only need to
look at the changes and characteristics of how the investors act.
We only have to look at the
price movement. We don't even have to care what the company is
doing. Even it is selling air,
rocks or sand, if investors are willing to put money into it and create
a nice chart, we should be
bullish on it. This is the logic behind the technical analysis.
It always works because there are always some craziness in the markets.
For an expectation of
future price change, the investors' judgment are always wrong.
However, if we look at those great companies like Microsoft, Coca Cola,
HK Bank and Cheung
Kong/Hutchison, their all the way up price trend is definitely due
to their good quality,
marketing, technology or management. If a company can have a
constant earning growth of
20-30%, how could its share price not to rise? So the fundamental
factors certainly play a role.
If our investment is only based on these things and don't look at the
supply and demand, we may
be as good as Buffett, the 2nd richest man.
So what shall we do? Shall we follow the technical chart or the
fundamental analysis? What is
the real cause of the price change?
Now I'm thinking of an idea. The whole situation is like flowers
and bees. The bees, like
investors, are flying all around to search for the most delicious flowers.
If a flower has tasty
honey, wonderful smell and bright colours, sooner or later the bees
will come. Our job is to see
when, how and why millions of bees are gathering around the flowers
- the bull market.
When the bees come, they will leave some wastes which help the plant
more healthy. They also
help the reproduction of the plant. On the other hand, the better
the flowers grow, more bees
will grow and come. So both of them are interactive.
When we kick a ball, we give an external force to make the ball move.
The reason why the ball
moves is because it is being a ball. If we kick to the wall,
it won't move. The force we apply to
it is only provide a condition for it to move.
However, how the ball move does not have any effect on us. The
situation of flowers and bees is
different. It is an ecology system. Both flowers and bees
have their own development and life
cycles. When they are living together, they have to depend on
each other for existence.
The first few bees land on a young flower should be very clear of what
the flower is and why
they come. The later ones come simply because they see others
are coming.
The flower has its own life cycle and so as the bees. Their growth
are both affected by the
environment - summer and winter. So now we are studying the whole
system which is
interrelated.
A flower could be blossom but there might be no bees to come.
It may be the bees overlook the
flowers, the bees become lack of interest, or the bees are died.
In stock market, a good stock
could have not much demand for quite a long time because it does not
meet the current investors'
taste or the market is lack of liquidity to buy.
Therefore, the object of the study should includes:
Bees - Investors (supply and demand)
Flowers - Individual Companies (Fundamental factors)
Environment - Business Cycles, exchange rate, interest rate and, etc.
(These are all external factors)
These factors will play different role at different stages of market
development. At present bull
market in the US, fundamental factors are totally reflected on the
overvalued stock prices, then
supply and demand play the key role.
In a bear market like HK after the Asian crisis, the "bees" are so little.
The supply had been
exaggerated and demand was hard to find. The fundamental seems
to play a greater role. We
can see the real good companies emerge after the crisis.
This is not a clue for investing, but I'm thinking of such approach
to look at the stock market.
Because we have so many info and analysis everyday, it is very hard
to pick up the right
direction.