Remember, information is the most valuable asset in the capital market . In this lesson we are going to talk about this sentence.
You must remember that we talked about risk in the last few programs. One of the definitions of risk was the possibility that reality differed from prediction. The greater the difference between reality and prediction, the greater the risk. Suppose a company’s share price is currently $ 150 and you expect the share price to reach $ 200 by the end of the year. Now what happens at the end of the year if the price of that share rises to $ 160 instead of $ 200? There is a $ 40 difference between your forecast and what happened. That means risk!
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How can this risk be reduced? The answer is a simple sentence. The forecast more accurately the risk of even less will be. This is where the second question comes into play. How can a more accurate forecast be made? The answer to this question lies in the use of accurate and valid questions. Therefore, it is not unreasonable to say that information is the most valuable asset in the capital market, because the main basis of decision-making in the stock market and risk control in this market is decision-making based on information, and that is why according to the rules and regulations of companies whose shares are listed on the stock exchange. Buyers and sellers are required to provide their financial and operational information to all investors on an ongoing basis and investors can make decisions about buying, selling or retaining their shares based on this information.
If you remember, in the previous lesson we introduced the types of risks,
1- Inflation risk
2- Exchange rate risk
3- Interest rate risk
4- Political Rybsk
5- Business risk
6- Liquidity risk
7- Financial risk
If you look closely at the definitions of these risks, you will find that we can control a significant portion of these risks by using accurate information . For example, it was said that one of the risks faced by the investor is financial risk, which means that if a company has borrowed a large amount from a bank, it will naturally have to pay the principal and interest of the loan to the bank, and if the sales amount And the company’s profitability is not commensurate with the terms of the loan received from the bank, it faces the risk of not being able to repay the loan. The extent of the company’s borrowing from the bank is a matter that can be easily identified and assessed by examining the information contained in the financial statements.
Also for other types of risks such as inflation rate risk, interest rate, exchange rate and other cases, although the analysis of these economic variables is based on the analysis of their fluctuations in the future, but the investor can carefully examine the published economic indicators Achieve significant forecasts of the future status of these indicators and their analysis on stock prices and other securities by official institutions as well as with the help of financial and economic experts. Therefore, using information helps reduce investment risk by helping to increase forecast accuracy .
Well, now you definitely want to know what good information should have. Makes the four basic features of information useful and citationable.
1- The information is valid and reliable
As much as reliable and accurate information can affect the success of an investment, incorrect information or rumors can increase the risk of investing. Suppose an investor buys shares of car companies at prices above the real value, hearing the rumors of an increase in car prices and hoping that this increase will increase the profitability of car companies. Now, if it turns out that this rumor is not true and the price of the car is not going to increase, what do you think will happen?
2- The information should be comprehensive.
In the previous example, suppose the news of a car price increase is true news. But if the carmaker’s costs also increase, the increase in car prices as a whole will not have much effect on the company’s profitability. Now, if the investor in buying the company’s shares only pays attention to the issue of increasing the price of the car and does not consider increasing the costs, do you think that he has made the right decision? Definitely not!
3- The information is up to date.
Information, no matter how credible and comprehensive, must be used instantly. Suppose a car company officially announces the price increase of its cars and announces that with this increase, the company’s profit will also increase. Naturally, as soon as this information is published, the demand for buying car manufacturers’ stocks will increase and the price of these stocks will rise. Now, if an investor buys the company’s stock a few days later, instead of buying the company’s stock as soon as he receives this information, it is not clear that he has made the right decision. Because during this period the stock price increases and it may not be possible to increase and profitability for the investor more than this.
4- The information is relevant.
It is sometimes observed that investors use irrelevant information as a criterion for decision based on the emotions of the market. For example, an increase in the exchange rate may have no effect on a company whose raw materials are supplied domestically and whose products are sold domestically. Therefore, investors need to pay attention to the extent to which the published information can affect the value of the company’s stock.
So now you probably agree that information is really the most valuable asset in the capital market . So stay tuned for the next lessons.
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