Nearly everyone who’s thought about investing in a stock has at some point taken a look at its price charts and data. P/E ratios, price trends, and many other metrics are undoubtedly all extremely important tools for evaluating a company’s potential for growth, but is it possible that some of them might be misleading?
I know that I’ve personally experienced situations in which I’ve checked out a company, looked at its price charts, and thought to myself “Yikes, their price has been going down recently,” or “Hm – price is increasing, but I’m worried it will reach a max and start to decrease soon.”
Essentially, I tend to subconsciously try to predict future price changes based on nothing but the past trading values of the stock. While this might be part of a proper analysis of a stock, its definitely not all of it. I have a feeling that many people subconsciously give too much credence to price charts when deciding to buy stock, so Conor and I are going to Washington D.C. this weekend to run a small experiment.
We’ll be giving randomly selected people in the city one of three types of data.
- Price chart data from three different companies
- Numerical data from the same three companies (P/E ratios, EPS, sales growth, etc.)
- Both price charts and numerical data from the three companies
We will then collect data regarding which company they would choose to pick to invest in, analyze that data, and publish the results next week. Check out the experiment materials below.
Featured image courtesy of http://www.vpsi.org