The power of information
In this modern world, information itself has great power and value. Epically on the stock market, we may easily realize the substantial impact of both positive and negative information over the share price fluctuation. In my opinion, the information on particular shares must be evaluated on three critical elements: the timeliness, reliability and its potential impact. I am going to illustrate four examples related to my recent trading on Chinese stock markets, and hopefully that would explain the direct influence over the market.
At first, let us use our yesterday’s example Sichuan Tianqi Lithium Industries,Inc.(sz.002466). We had fully interpreted the effect of the 20 million anticipated profit disclosure, which ended up with 10% increase in the company share price. Although this announcement has not been audited, the reliability is considerably high. However, we anticipated that the impact of this information could be short. Indeed, the candle stick chart pictured a doji cross today, which the share prices were closed near the open price after the short boost in the morning. The stimulation effect of the report was fading, so buyers tend to hold and observe further development. We can see the importance of the timeliness information, since only the buyers on the first day would achieve the maximum return. By the way, the company released the report on significant asset reformation progress. It claimed the company had completed the acquisition of Galaxy Lithium International Limited, where could possibly induce another wave of capital gain tomorrow.
On the other hand, my investment on China Minmetals Rare Earth Co., Ltd.(000831) has provided a stable stream of profit. The previous rise on stock price was somehow based on the investors’ faith over the future government-controlled enterprises' consolidation, plus the development on ‘new silk road.’ The corporation provided the annual report on 2014 this afternoon, which showed a tremendous loss at 55.57 million CNY. We can expect the influence of this reliable information (official financial report) over the share price tomorrow. Nonetheless, the investor may still remain confidence on the future development of company, so the price may not drop at a heart-breaking rate. Similarly, only those holders received this news on time will be able to make reasonable decisions such as withdraw to avoid loss.
Even though the company report is the reliable and the most convenient source of information that we can access, it is very common that the market will move complete opposite from the predicted impact. Usually, this is because there are other concealed factors in the market. It is important for us to piece through the veil of these elements and gather sufficient information to adjust our decision. For instance, both Ping An Insurance (Group) Company of China, Ltd.(601318) and China United Telecommunications Co. Ltd.(600050) disclosed positive news on their profit generation ability. But the share price still continuously on a bearish trend. Therefore, there must be other forces has not been revealed in the market. After a brief study on the flow of funds, we can figure out there were immensely large inflows and outflows on the stock. The reliability of this information is supported by the daily ranking of extreme large trading outflows, where Ping An Insurance was at the first place and China United Tele. at the tenth. That information may indicate the makers were possibly: luring buyers, performing market sanitation, or oppressing share price. The large amount of transactions restricted the increase of share price. Thus individual investors might choose to quit due to the uncertainty. Consequently, the maker of the stock will control most proportions of the share and prepare for the incoming gain. This sort of information required considerable knowledge to figure out, and it is the crucial factor that distinguishes a successful investor from regular investors.
At last, I would like to emphasize the importance of comprehending the timeliness, accuracy and impact of information in the stock market. It is the simplest way to predict movement in the market, thereby it becomes the fundamental skills that must be acknowledged by us.
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