Stock Prices on the Scales
Nancy Kao / photos Chiu Sheng-wang / tr. by Stephen Rabasco
November 1987
At the beginning of this year the domestic stock market was at an all time high. It kept rising sharply. No one knew when it would stop. On October 1st, when the weighted index number rose 340 percent compared to that of the beginning of the year, stock prices fell sharply. Investors, not knowing how far the market would fall, looked on anxiously.
People in the market often say, "You can be greedy, but you can't be the greediest."
Everyone knows this, yet there are always people in the market who get burnt. Greed is one reason; not being able to judge the value of the stock is another. If you know what the value of stock should be, then you'll know what to avoid when buying and selling.
When you buy a company's stock you become a stockholder of that company. As the company earns money, the stock-holder in turn is given a dividend. If everyone likes a certain stock then its price will rise. On the contrary, if a company suffers a financial loss, its stock will fall.
With so many ways of investing money, why choose to invest in the stock market?
How are stock market profits calculated? The most basic way is price earnings ratio (P/E ratio), the market price of a share of stock divided by earnings per share.
"Whether the price of a stock should be high or low often depends on the relationship between the P/E ratio and bank interest rates. This is the standard used by various nations of the world," says Andy Cheng, manager of Kwang Hua Securities Investment & Trust Co., Ltd.
"The factors which determine the P/E ratio's increase or decrease depend on the company's profit-making ability and the booming of the industry," says Ch'en Han-chung, of Yung Li Capital Management Securities Co., Ltd. He's pointed out that stock prices of some high-risk industries which import raw materials, like the textile industry, or which export, like the electronics industry, are all greatly influenced by the change in exchange rates and the continual appreciation of the N.T. dollar.
The difference between saving money in the bank where we watch it earn interest, and the rise and fall of the stock market, is that in the stock market both capital and earnings move together. If the odds are high and the dividends are divided among many people, then naturally everyone will like the company's stock. People will be willing to sell at a higher price. On the other hand, if a company is not doing so well, then its stock prices will fall. In addition to the company's profit-making ability, external factors may cause the stock price to go up or down.
A comprehensive view of the world economy and that of a nation are large factors on the market.
Taking a look at the ROC, this year the economic growth rate was more than ten percent. Several industries were developing quite well. There was lots of idle money at hand, interest rates were low, and commodity prices were stable.
Like a rising wave, more and more people invested in the stock market. In the wave of buying, companies--regardless of whether they were gaining or losing--rose together. Prices on the stock market climbed higher and higher. On October 2nd the stock price index jumped to more than 4,700 points.
"Stock prices have reached their top-level price," said Jason Chang, board chairman of the Security Analysts Association, ROC
Since October 2, after the long-term rise of the domestic stock market, and its first big fall, stock prices have not been stable, with few rises and more falls. Some have sold their stocks quickly while others are waiting for an opportunity in which they'll take the risk of making even more money or losing the shirt off their back.
In October, the stock index number dropped more than 100 points in one day, giving everyone a real scare. It was as if the overall prices of stock had fallen. On the stock market banks have lots of capital. If it increases one N.T. dollar, then the index number will jump several points. Smaller stocks must rise several dollars before their index numbers are able to increase one or two points.
No one dares to say for certain how far a stock will rise or fall or what its price will be. However, those in the fast moving wave of the stock market who understand the actual value of a stock can at least avoid misfortune, and gradually move ahead.
[Picture Caption]
Calculating the actual cost of stocks with a calculator.
At present, most of those in the stock market buy and sell in a short period of time in order to make money.
On the trading floor, all eyes are on the board as they anxiously await news.
At present, most of those in the stock market buy and sell in a short period of time in order to make money.
On the trading floor, all eyes are on the board as they anxiously await news.
@List.jpg?w=522&h=410&mode=crop&format=webp&quality=80)
