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The Psychology of Stock Prices
In chapter 12, Howard ties everything together here that we've learned thus far. He says our job as investors is simple. It's to deal with the prices of assets and make judgments regarding how they will change in the future. Prices are primarily affected by two things, fundamentals and psychology. Fundamentals can relate to many things depending on the asset you're talking about. For stocks, it might be earnings, cash flow and the outlook for the two. These are all influenced by the trends in the economy, profitability levels and the availability of capital. And then the other side is psychology. This relates to how investors feel about the fundamentals and how they're valuing these assets.