As much as this seems like a no-brainer, stock trading is based on estimated value of an entity with significant property or value (assets), as well as the estimated profitability of said entity.
What the heck does that mean?
Consider Burger King, which might seem a weird example, but bear with me.
When Burger King’s people come out with an idea for a new sandwich or whatever, they have a group of people dedicated to predicting how well a product will do. This is in turn used to create a profitability forecast of sorts, giving them an estimate on ROI for things like manufacturing, shipping and distribution, marketing etc.
This kind of thing, combined with other aspects of well BK is doing as a company like whether or not their profits have risen or fallen over a period of time, events like lawsuits and other things that reflect badly on their public image (which can drive a stock value down in a hurry depending on the situation) all have to do with their current stock value as a company.
The better they do, the higher the prices their stock shares are sold for, the worse they do the further down it goes. This kind of investment allows behemoths like BK and other global companies to function, and is also why paying attention to current events is crucial to success in the world of stock trading.
It is also a way to understand how a capitalist society like ours in the U.S. works as far as how our economy affects our government and vice versa.
Check me out next time for an example of how public opinion affects trading.
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