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Stock market has become a major buzz especially in the IT industry in the recent past. Every other person in every other day has their own view of the Indian stock market and the TV channel hosts lot of talks by so called experts in stock market. Sometimes (almost all times) on seeing these would make me feel that nothing is worth. More about stock advices is at this blog. After following Indian stock market for almost 12 years, I am trying to put my thoughts here.


First, lets have an brief introduction on stock price -

There is nothing called "price" for a stock in the secondary share market. Its only the "last traded price" of a stock that would reflect the value of the stock. Hence the value of the stock is decided by buyers/ sellers of the stock. Whenever there is a demand for a stock, the buyers would be ready to pay more than its current value and the sellers would resist selling at the current value, thus the trading would happen at a higher rate and thereby increaseing the stock value. Reverse of this statement is also true.

Next let us see about the stock market -

The stock market doesnot restrict to the buyer, seller, exchange and the stock. Its a very big system with lot of elements in it. Anything that could impact either lightly OR heavily the value of the stock either immediately OR in the near future OR in the far future can be considered as an element of the system. The impact could be either positive OR negative. Also, Elements could affect the value directly OR combination of certain elements could do so. The permutations and combination of all but not restricted to the above mentioned OR factors would increase the complexity of the system. Thus the system in which the stock trading happens is very big and highly dynamic. We can consider each and every activity happening in the world as an element of this system, even a butterfly flapping its wing could be one. (Then, Imagine how big the system could be!).

Now lets move to the main topic -

The tricky question to win stock market is "What is the demand for a particular stock and what could be its demand in future". If every element remains constant in the system, the demand doesnot change. But as the system is highly dynamic, the demand keeps changing. The demand changes only due to the effect of elements in the market and not anything else. So, to determine the future demand of the stock we need to carve out the most important elements of the system and follow its dynamics. Remember that rumor could also be an element of the stock market, and so is the news channel's junk talks :)

From the above, I hope you can believe that the value of a stock is deterministic, meaning that their future dynamics are fully defined by their initial conditions with no random elements involved. Eventhough it is deterministic it is hardly predictable because of the size of the system and its dynamism. One more element of the system is the effect of our effort to evaluate the system which would become recursive and thus becomes unpredictable.

Thus my only suggestion is to dynamically take few important elements of the system related to few stocks and believe in them to invest on them.

Note: The concepts that we have discussed above can be applied for our life aswell. Everything that happens in our life is deterministic (fate), but can hardly be predicted. Some people like true astrologers try to predict it by considering many elements that can greatly affect the system.