A person as investor buys and holds stock for an income but as a speculator he holds for profit.
The longer an investor hold a stock, more important are the dividends or coupons and less important is the price when sold.
The usual buyer is a hybrid of both investor and a speculator. A pure investor holds a security for long periods and a pure speculator promptly sells what he buys.
A Wise investment is one where the issue is bought when it is selling far below their true worth; and in subsequent years large income payments are received because things turned out better for the security than most people expected; so a handsome return on the principle can be enjoyed; and these kinds of profits are not caught in the tax net.
We can define Investment value as the present worth of the future dividends in case of stock or of the future coupons and principle in case of a bond.
How the Price of the stock becomes?
In the field of financial speculation, people seem to believe in a 'social mind' or 'collective intelligence' -- a mind above and apart from the minds of individual traders, and greater than the mind of the any one of them. This animistic notion of a 'market mind' is seldom set forth explicitly. But we can implicitly see it in theories which explain the leads and lags of different indices. People say speculative prices move first, business volume second and interest rates third; and the reason why the speculation precedes everything else must be that the speculators as a class can foretell, even though speculators as individuals cannot, about the course of Business.
People think it is simple to follow this notion. The truth is that there exist a business series which moves faster than the stock and any novice can follow it if he gets access to it.
Bookings and the Stock prices
The business series referred is nothing but the 'Order Received' or the 'Bookings'. It leads all other series in the business cycle. Orders must be booked by the sales man before the goods can be made in the factories or receivables financed by the banks. Naturally, orders moves first, business volumes second and interest rates last. Stock prices only do best to keep with the orders. A person who has the access to this information would be able to make money well before this better or worse information about the business circulated.
The Bookings are a better forecaster than the rate of operations or the prices of scrap which are two well regarded business indices. Bookings are the principle forces which turns the stock prices up or down and the notion of market's power of prophecy to some superhuman intuitive faculty of the 'group mind'.
