Is there a base value for shares ?

This is a very interesting question which many of my friends like to ask ...what exactly is the base level if there is one in the first place ? Is it the intrinsic value of the share eg NTA , breakup value or is it a chart based support level eg 200 day SMA , a triple bottom or the price reached when the index is at a 5 year low  ? In reality there is no base price...

The share price at any point of time is simply a function of supply and demand and that being the case there is no permanent base price ...and with  that in mind one should understand that his portfolio of shares is fully exposed to the vaguries of all factors affecting the price movement of his shares...This simple fact has important ramifications...and should not be lost on the average investor or trader...

Why so ?

Imagine someone buying into  2 or 3 counters at a certain point of time , say day 1 , Assume also that he has no holding power and as such need to square off his position completely by due date..ON day 2 ,one of the 3 counters goes up and he takes his profits ( which is easy when you are winning ) and holds onto his other 2 counters which didnt move either way... His rationale is simple ...he is hedging his bets ie in day 3 he hopes his non performimg shares will go up...but more often that not in day 3, also the due date there is a strong possibility his 2 counters which didnt move up in day 2 actually drops further..This drop can be due to broad market weakness or just normal selling affecting these 2 counters...and the net effect may result in him suffering a net loss on the 3 counters in totalilty ...this seemingly simply analogy surprisingly does not dawn on many retailers...and the sole reason could be just that he believes in the "base value " concept when in fact it does not exist !

 

Moral of the story....invest /trade to your financial capacity and not beyond.. There is no "safe " price to a share...