Answer to Question #317416 in Marketing for Maham

Question

According to Lord Keynes “Given market prices, investors driven by the speculative

motive, would trade on forecasts of the future market price of stocks, rather than stocks’

intrinsic values.” As a security analyst:

a. Comment on the given statement

b. Given this statement, why do we need fundamental analysis?

Answer 1

a). Given that investors want to invest in stocks that will add value to their investments, they are more likely to go with the speculative motive. This is because it may seem easier to predict the market price rather than the value of the stocks. The reason why they might be reluctant to use the intrinsic value of the stocks is because the future value of stocks is harder to arrive at as compared to future costs.

b). Fundamental analysis is important because it allows us to analyze the current value of stocks or assets. This analyses is used to determine the factors that could affect the prices of the stocks in future. Fundamental analysis focuses on both eternal and internal factors that could affect the value of the stock.