Hello All,

In my opinion we use number of qualitative and quant methods to come up with required value of a share, but what lie beneath the output of these methods are assumptions that we make. From revenue to dividend we put forward our expectations to come up with final valuation of any company or stock. But the question remains from where these assumptions come?
1. Years of experience in industry
2. Future expectations and macro indicators
3. Personal opinions about certain company or market etc.
If above mentioned traits are with us, then why we (investors and traders) react to market fluctuations?
Number of examples can be given for this which proves we react to market movement with emotions and which in turn again moves the market. E.g. For 2008 recession and reaction to it where all stocks got beating even when some them were fundamentally very strong in long-term (guess what analysts only gave them these high valuations).
The only reason is behavioral aspect which led to such erratic movement in market where even best companies lost chunk of their value.
Similarly we can observe this phenomenon with individual stock as well. When stock reaches new high people tend to sale it and once selling starts stock losses its value and recovers once selling pressure goes away. Which proves not all, but many of us follow behavioral pattern while investing or trading.
Software and technology companies can be a very good example for study of how people react to market based on emotions only. These companies practically gain 1000% within few years and lose their value in same manner e.g. Yahoo Inc.