The Stock market are such a big part of daily life, that almost every newspaper will have at least a few pages dedicated to what share prices are doing. By the end of this course, I aim for you to understand everything that these news reports are discussing. I want you to understand why so many movies have been made about the financial crisis, or why the story lines os so many series often include action from the high adrenalin trading floors from around the world.

(In fact in the final chapter I will detail a list of media that you will be able to test and fine tune your knowledge by viewing!)

But one of the main questions we have to begin with, is what makes share prices move around so much? Why is there all the action with the flashing blue and red prices on screen, and why do so many people care about the value of the stock market going up and down?

Wouldn't it be easier for prices to change just once a week, or once a month?

To answer this, we have to delve into what is moving markets every day. If you think about everything that can possibly change how much profit a company can make, then the list could go on for longer than the movie "Avatar 2". And that is a long, long time.

For now, lets try a game outside of markets to show this as an example. Imagine you are watching the World Cup Final for soccer. Now I'd like you to think of how many people in the world will switch on their kettle or coffee machine to make a drink at half time during the game. Very tough question, but there are a number of questions that you would have to ask, in order to help you to come up with an estimate.

First of all how do we estimate how many people will be watching? Which time zone is the final in? Which teams are playing? Has the tournament been popular up until now?

Secondly, how many people normally drink tea or coffee during football? Or how many people drink tea or coffee in the world in any 15 minute period? Is there any previous statistics we can research to give us any clues?

Finally what about the game itself? Is it a nail biter? Have there been a lot of action points in the first half that means viewers may want to see the highlights rather than leave their television sets? Or has it been so boring, that maybe kettles were already switched on after 20mins and therefore do not count as being during half time.

No doubt, you will also come up with many points that I haven't even thought of! But if I were to ask 100 of you what your guess was, it's possible we might not get more than a few identical guesses.

I have given you a very tough puzzle to estimate. Your guesstimate is what we could call your "Expectations of hot drinks made at half-time". There are so many information points to take into consideration, that it's almost impossible to have the perfect answer.

But, in these kind of games then expectations are everything. They are made up of estimates, assumptions and an incredible amount of data points that are changing all the time.

I'm sure you are beginning to see where I am going with this!

Remember from our last lesson, that the value of a stock is made up of guesses on how many dividends it will pay out to shareholders in the future. Nobody knows for sure what the profits of a company will be next year or the one after. And the further into the future you look, the harder it is to have an accurate guess.

In a very basic example, if we were to calculate the share price of you as a human, then we could simply add up your salary from this year and the next 9 years after that, and you could argue to me that the total is the minimum of what your theoretical personal worth could be! (Of course you could then add on any savings you have at the moment, but lets keep it simple at the moment). However, we all know that it's nearly impossible to know how much our own salary will be in a few years time. So imagine how hard it is for a company to predict it's revenues, profits and how much it will be able to pay back to shareholders in dividends!

This is why share prices are moving constantly. And sometimes in such a wild fashion!

1. Everyone has different opinions on what the share price of a company should be.
2. Estimates of future profits change constantly
3. New data points that could effect these guesses are found or updated
4. Big buyers or sellers of stocks effect the market

By the end of this course, you will have a much clearer idea of what the important drivers of these estimates are. You will learn how to form your own estimates or at least where to find the estimates of the very clever people that have an insight. I'll help you understand why shares prices moving can sometimes be an opportunity for you to seize, then sit back and watch your investment pay you those good returns!

If you can see the stock market is ONLY made up of everyone's guesses of what hundreds of companies future profits might be, then taking that first step of buying your first share shouldn't be as intimidating.

It's just like thousands of people guessing how many kettles will be switched on during the world cup final. It's just like you guessing what your company will be paying you in salary in 5, 6 or 7 years time. It's not a black box. We can demystify all this for you, and build your confidence on how to join in!

Some simple examples we will look at in the chapters ahead;

If a company launches a new product that is very popular, this could really boost profit expectations.

If the economy is getting stronger, then this can help profit expectations.

If people are losing their jobs, this can make people worried about consumers spending power.

If the cost of mortgages and loans goes up (interest rates) then this could also cause people to be worried about the effect on consumer spending.

A secret little insight into how it works..... The stock market doesn't wait for things to actually happen! It is the single most efficient predictive pricing mechanism you will ever find. Generally we would expect things to be priced in around 3-6 months before they happen. Of course, this can be considerably shorter when the event is unexpected or too close to call, like an election result or referendum. And this is what can cause a violent move one way or the other!