How Are Stock Prices Determined?

collective knowledge of stock market participants are similar to everyone guessing how many jelly beans are in the jar.

 

This is a video post created by our partner Dimensional Fund Advisors (DFA). As a NJ DFA advisor, we are strong believers in the DFA investment philosophy and wrote about the reasons in this post:  Why Do We Use DFA?

In this 2-1/2 minute video, DFA explains how security prices are set—and change—based on the collective knowledge of buyers and sellers. Armed with this information, investors can be more confident about the power of the financial markets.

 

 

The video opens with a quote from recent Noble Prize winner Professor Gene Fama:

In an efficient market, prices fully reflect available information.

Every trade has a buyer and seller. Ask yourself these two questions before every trade,

What does the seller/buyer know that I don’t?  

Who is the other counterparty to this transaction?

There was a famous NY area department store which used to run a television ad with the slogan, “The more you know, the more you will save.”   With investing, the television slogan for investors should be:

The more you know, the less you will trade.

Click on the words to the right to begin this video: THE POWER OF THE MARKETS

 

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About Dan Crimmins

Dan Crimmins, co-founder of Crimmins Wealth Management, is a financial coach and fee only financial planner. Have a financial question? ASK DAN

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