| The Stock Market as a Discounting Mechanism |
| The Stock Market is considered to be a Discounting Mechanism; that is, participants are always looking forward and prices are always adjusting according to the anticipation of future events. These events may range from actions of specific companies and/or their industries to aspects of the economy on a national or world scale. |
| The market generally discounts activity 6 months in advance. If the economy is expected to improve 9 months from now, the prices of stock would be expected to improve in, approximately, 3 months. |
| Popular Stock Market Adage: "Buy on the rumor, sell on the news." That is, buy the stock months before the particular event because the market is discounting the anticipated event well in advance of the outcome. Novice investors are often perplexed by a declining stock price after the release of a good earnings report. Once the anticipated event is "priced in," the stock often retreats. |
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| Warning: The Stock Market is never black and white, it always comes in varying shades of gray. No rule or adage can ever be applied consistently. Even veteran professionals are often fooled. |
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