In theory, the value of a security (stock or bond) is measured by the discounted value of future total return that can be expected. That is to say that back calculated today , the estimated value of dividends or coupons that you receive throughout the holding period and the more or less capital gain will be realized on resale. This will include undertaking the discounted future returns and an analysis of factors that may affect the yields of the title.

There are general factors and factors specific to the title.

The general factors
There are many, not always easy to predict, isolate or analyze. But we can identify a few who have a clear impact on the stock market in general:


The economic and political environment: strong growth, particularly in the United States, and a calm political situation are factors of stability and demand in stock markets. For example, if there is growth, corporate profits are expected to increase, which has a ripple effect on stock prices.

Interest rates. Short-term rates set by central banks (up to fight against inflation, falling to boost growth), affect long rates, which determine the price at which firms can borrow. When interest rates rise, bond prices decline at a fixed rate and vice versa. Why? Because, if rates rise, older bonds, which serve a lower interest rate, become less interesting, and not find takers in the market only if their price drops.

Example
A bond with a face value of € 200 issued at an interest rate of 4.50%, gives a coupon of 9 €. If rates rise, the new bonds will be issued at a higher rate (eg 5%). The buyer of the obligation that this obligation will require former earns the same thing. The adjustment will be made by the bond price, it’s interest to purchase only if it is “value of the coupon / interest rates again,” that is to say in our example 9 / = 0.05 € 180.

Rising interest rates making bonds less expensive, the shareholders can arbitrate in favor of bonds, sell shares, whose price, therefore lower. But once the share price falls too low, they become more profitable, which encourages new purchases of shares and pushing up their prices.

• The price trend may have contradictory effects. If households expect higher prices, they may tend to consume more, fearing further price increases, and therefore save less. Conversely, if they wish to maintain the value of their heritage, they are encouraged to save more.
• The tax on securities rather influence the distribution, in securities, between stocks and bonds.

The analysis of the title
Some analysts believe that we can learn from the past and a way will tend to always follow the same type of evolution. They draw graphs and identify the high points, low points … This is called the analysis Chartist.
A more widespread (and only possible in case of market introduction): the so-called fundamental analysis, which reflects the characteristics of the issuer (other name of the company, which issues securities).
This assessment of the issuer through the analysis of its accounts (see also our section “understand the company’s accounts” ).

The PER (price earning ratio) is the ratio between the price of a share and expected earnings (derived from fundamental analysis described above). It allows comparison of firms in the industry, and to determine whether a stock is expensive or not. Several other methods are used by financial analysts.

If this is to analyze a company to buy its bonds, the analysis focuses more on its ability to repay its debts assessed by rating agencies like Moody’s, Fitch Ratings or Standard & Poor’s noted that the companies according to their risk (the best, AAA, CCC at least good or even D). The evaluation of bond prices is relatively complex, and remains largely the result of specialists.

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