How can you correlate a company stock's performance with overall market performance?
How can you correlate a company stock's performance with overall market performance. No you can't. There is no simple magic formulae that will result in profits. There are quite a few statistical algorithms that specialists have built, that work most of the times. But they are incorrect most of the times as well. Generally, if you are trend trading, and if the market as a hole is going up strongly and an individual stock is falling sharply on the same day, I would tend to stay away from buying that stock at the moment. The market is showing strength whilst at the same time the stock is showing weakness. The general rule of thumb for trend trading is to buy rising stocks in a rising market. Or you could look to short sell falling stocks in a falling market.
You shouldn't. The Dow has gained 7% annually on average since October 1915(inflation-adjusted). It has also lost 73% of its inflation-adjusted value from 1966 to 1982 meaning that it would have lost you 4.5% annually for 16 years. Furthermore, past performance is not indicative of future results. If stock markets keep performing like they have for the past 100 years, you can expect there will be a point within the next 60-or-so years your stocks will be higher in value than they were when you bought them. With funds you are paying the people managing them which means you are guaranteed to have pyramiding losses that your gains will have to offset. In your case, you are betting with no fundamental knowledge that S&P will be higher than now whenever you need the money which is not even supported by the above assumption. Dollar averaging just means you will be placing many bets which will reduce your expected losses(and your expected gains) when compared to just buying $100K worth of S&P right now. Whatever you invest in, and whatever your time-frame, don't gamble. If you can't say this company(ies) will be $X more valuable than now in X months with probability > Y, then you shouldn't be investing in it. Nobody ever made money by losing money. There are also safer investments than the stock market, like treasury bonds, even if the returns are lousy. "From How are indexes weighted?: Market-capitalization weighted indexes (or market cap- or cap-weighted   indexes) weight their securities by market value as measured by   capitalization: that is, current security price * outstanding shares.   The vast majority of equity indexes today are cap-weighted, including   the S&P 500 and the FTSE 100. In a cap-weighted index, changes in the   market value of larger securities move the index’s overall trajectory   more than those of smaller ones. If the fund you are referencing is an ETF then there may be some work to do to figure out what underlying securities to use when handling Creation and Redemption units as an ETF will generally have shares created in 50,000 shares at a time through Authorized Participants. If the fund you are referencing is an open-end fund then there is still cash flows to manage in the fund as the fund has create and redeem shares in on a daily basis. Note in both cases that there can be updates to an index such as quarterly rebalancing of outstanding share counts, changes in members because of mergers, acquisitions or spin-offs and possibly a few other factors. How to Beat the Benchmark has a piece that may also be useful here for those indices with many members from 1998: As you can see, its TE is also persistently positive, but if anything   seems to be declining over time. In fact, the average net TE for the   whole period is +0.155% per month, or an astounding +1.88% pa net   after expenses. The fund expense ratio is 0.61% annually, for a   whopping before expense TE of +2.5% annually. This is once again   highly statistically significant, with p values of 0.015 after   expenses and 0.0022 before expenses. (The SD of the TE is higher for   DFSCX than for NAESX, lowering its degree of statistical   significance.) It is remarkable enough for any fund to beat its   benchmark by 2.5% annually over 17 years, but it is downright eerie to   see this done by an index fund. To complete the picture, since 1992 the Vanguard Extended Index Fund   has beaten its benchmark (the Wilshire 4500) by 0.56% per year after   expenses (0.81% net of expenses), and even the Vanguard Index Trust   500 has beaten its benchmark by a razor thin 0.08% annually before   (but not after) expenses in the same period. So what is going on here? A hint is found in DFA's 1996 Reference   Guide: The 9-10 Portfolio captures the return behavior of U.S. small company stocks as identified by Rolf Banz and other academic   researchers. Dimensional employs a ""patient buyer"" discount block   trading strategy which has resulted in negative total trading costs,   despite the poor liquidity of small company stocks. Beginning in 1982,   Ibbotson Associates of Chicago has used the 9-10 Portfolio results to   calculate the performance of small company stocks for their Stocks,   Bonds, Bills, and Inflation yearbook. A small cap index fund cannot possibly own all of the thousands of   stocks in its benchmark; instead it owns a ""representative sample.""   Further, these stocks are usually thinly traded, with wide bid/ask   spreads. In essence what the folks at DFA learned was that they could   tell the market makers in these stocks, ""Look old chaps, we don't have   to own your stock, and unless you let us inside your spread, we'll   pitch our tents elsewhere. Further, we're prepared to wait until a   motivated seller wishes to unload a large block."" In a sense, this   gives the fund the luxury of picking and choosing stocks at prices   more favorable than generally available. Hence, higher long term   returns. It appears that Vanguard did not tumble onto this until a   decade later, but tumble they did. To complete the picture, this strategy works best in the thinnest   markets, so the excess returns are greatest in the smallest stocks,   which is why the positive TE is greatest for the DFA 9-10 Fund, less   in the Vanguard Small Cap Fund, less still in the Vanguard Index   Extended Fund, and minuscule with the S&P500. There are some who say the biggest joke in the world of finance is the   idea of value added active management. If so, then the punch line   seems to be this: If you really want to beat the indexes, then you   gotta buy an index fund." The stock market is generally a long term investment platform.  The share prices reflect more the companies potential to be profitable in the future rather than its actual value.  Companies that have good potential can over perform their actual value.  We saw this regularly  in the early days of the internet prior to the .com bust.  Companies would go up exponentially based on their idea's and potential.  Investors learned from that and are demanding more these days.  As a result companies that do not show growth potential go down. Companies that show growth and potential (apple and google for 2 easy examples) continue to go up.   Many companies have specific days where employees can buy and sell stocks.  there are minor ripples in the market on these days as the demand and supply are temporarily altered by a large segment of the owner base making trades.  For this reason some companies have a closed pool that is only open to inside trades that then executes the orders over time so that the effect is minimized on the actual stock price.  This is not happening with face book.  Instead many of the investors are dumping their stock directly into the market.  These are savvy investors and if there was potential for profit remaining you would not see the full scale exodus from the stock.  The fact that it is visible is scaring off investors itself.  I can not think of another instance that has gone like facebook, especially one that was called so accurately by many industry pundits. Don't ever, ever, ever let someone else handle your money, unless you want somebody else have your money. Nobody can guarantee a return on stocks. That's utter bullshit. Stock go up and down according to market emotions. How can your guru predict the market's future emotions? Keep your head cool with stocks. Only buy when you are 'sure' you are not going to need the money in the next 10 years. Buy obligations before stocks, invest in 'defensive' stocks before investing in 'aggressive' stocks. Keep more money in obligations and defensive stock than in aggressive stocks. See how you can do by yourself. Before buying (or selling) anything, think about the risks, the market, the expert's opinion about this investment, etc. Set a target for selling (and adjust the target according to the performance of the stock). Before investing, try to learn about investing, really. I've made my mistakes, you'll make yours, let's hope they're not the same :) "At any given moment, one can tally the numbers used for NAV. It's math, and little more. The Market Cap, which as you understand is a result of share value. Share value (stock price) is what the market will pay today for the shares. It's not only based on NAV today, but on future expectations. And expectations aren't the same for each of us. Which is why there are always sellers for the buyers of a stock, and vice-versa.  From your question, we agree that NAV can be measured, it's the result of adding up things that are all known. (For now, let's ignore things such as ""goodwill."") Rarely is a stock price simply equal to the NAV divided by the number of shares. Often, it's quite higher. The simplest way to look at it is that the stock price not only reflects the NAV, but investors' expectations looking into the future.  If you look for two companies with identical NAV per share but quite different share prices, you'll see that the companies differ in that one might be a high growth company, the other, a solid one but with a market that's not in such a growth mode." Your understanding of the stock market is absolutely correct theoretically. However there is a lot more to it. A stock on a given day is effected by a lot of factors. These factors could really be anything. For example, if you are buying a stock in an agricultural company and there was no rainfall this year, there is a big chance that your stock will lose value. There is also a chance that a war breaks out tomorrow and due to all the government spending on the war, the economy collapses and effects the prices of stocks. Why does this happen? This happens because bad rainfall or war can get people to lose confidence in a stock market. On the other hand GDP growth and low unemployment rates can make people think positive and increase the demand in a stock driving the prices up. The main factor in the stock market is sentiment(How people perceive certain news). This causes a stock to rise or fall even before the event actually happens. (For example:- Weather pundits predicted good rainfall for next year. That news is already known to people, so if the weather pundit was correct, it might not drive the prices up. However, if the rainfall was way better than people expected it to be it would drive the price up and vice versa.   These are just examples at a basic level. There are a lot of other factors which determine the price of the stock. The best way to look at it(In my personal opinion) is the way Warren Buffet puts it, i.e. look at the stock as a business and see the potential growth over a long period of time.  There will be unexpected events, but in the long run, the business must be profitable. There are various ways to value a company such as Price to earnings ratios, PEG ratios, discounted cash flows and you can also create your own. See what works best for you and record your success/failure ratio before you actually put money in.  Good Luck, The problem with predicting with accuracy what a stock price will do in any given situation is that there are two main factors that affect a stocks price. The first factor is based somewhat in math as it takes into account numbers such as supply and demand, earnings per share, expected earnings, book value, debt ratio and a wide variety of other numbers. You can compile all those numbers into a variety of formulas and come up with a rational estimate of what the stock should sell for. This is all well and good and if the market were entirely rational it would rarely make news because it would be predictable and boring. This is where our second factor throws a wrench in the works.  The second factor affecting stock price is emotional. There are many examples of people's emotions affecting stock price but if you would like a good example look up the price fluctuations of Apple  (AAPL) after their last couple earnings reports. Numerically their company looks good, their earnings were healthy, their EPS is below average yet their price fell following the report. Why is that?  There really isn't a rational reason for it, it is driven by the emotions behind unmet expectations. In a more general sense sometimes price goes down and people get scared and sell causing further decline, sometimes people get excited and see it as opportunity to buy in and the price stabilizes. It is much more difficult to anticipate the reaction the market will have to people's emotional whims which is why predicting stock price with accuracy is near impossible.  As a thought along the same line ask yourself this question; if the stock market were entirely rational and price could be predicted with accuracy why is there such a wide range of available strike prices available in the options market?  It seems that if stock price could be predicted with anything remotely reassembling accuracy the options market need a much smaller selection of available strike prices. How I understand it is: supply/demand affect price of stock   negatively/positively, respectively. Correct. Volume is the amount of buying/selling activity in these stocks (more   volume = more fluctuation, right?). Sort of.  Higher volume means higher liquidity.  That is, a stock that is traded more is easier to trade.  It doesn't necessarily mean more fluctuation and in the real world, it often means that these are well-understood stocks with a high amount of analyst coverage.  This tends towards these stocks not being as volatile as smaller stocks with less liquidity. Company revenue (and profit) will help an investor predict company   growth. That is one factor in a stock price.  There are certain stocks that you would buy without them making a profit because their future revenue looks potentially explosive.  However, these stocks are very risky and are bubble-prone. If you're starting out in the share market, it's generally a good idea to invest in index funds (I am not a broker, my advice should not be taken as financial advice).  These funds aggregate risk by holding a lot of different companies.  Also, statistics have shown that over time, buying and holding index funds long term tends to dramatically outperform other investment strategies, particularly for people with low amounts of capital.