The stock market is a constantly evolving entity, with changes happening on a daily basis. As investors, it is important for us to stay updated and informed about these changes in order to make wise investment decisions. One such change that has been implemented recently is the use of the 6-month average free flow market capitalisation as a basis for making decisions in the stock market.
But what exactly does this mean and how will it affect investors? Let’s delve deeper into this new development and understand its significance.
Firstly, let’s understand what free flow market capitalisation means. It is the total market value of a company’s outstanding shares that are available for trading in the open market. This excludes any restricted shares or shares held by insiders. In simpler terms, it is the value of a company that is available for investors to buy and sell in the stock market.
Now, the 6-month average free flow market capitalisation refers to the average value of a company’s shares over a period of 6 months. This is calculated by taking the average of the company’s market capitalisation for each month over the past 6 months. This new method of calculation takes into account the fluctuations in a company’s share price over a longer period of time, rather than just looking at the current market value.
So why has this change been made and how will it benefit investors? The main reason behind this change is to provide a more accurate and stable representation of a company’s value. In the stock market, prices can be highly volatile and can be influenced by various factors such as market sentiment, news, and speculation. By using the 6-month average free flow market capitalisation, the impact of these short-term fluctuations is reduced, giving a more realistic picture of a company’s value.
This change will also benefit investors by providing a more long-term perspective. In today’s fast-paced world, investors often tend to focus on short-term gains and overlook the long-term potential of a company. By using the 6-month average, investors will be able to see the overall trend of a company’s value, giving them a better understanding of its growth potential.
Moreover, this new method will also help in reducing market manipulation. In the past, there have been instances where companies have artificially inflated their share prices to attract investors. This has led to false perceptions of a company’s value and has resulted in investors making wrong decisions. With the use of the 6-month average, such manipulations will be minimized, providing a more transparent and fair market for investors.
Another advantage of this change is that it will provide a more accurate representation of the market as a whole. By using the 6-month average, the impact of a few companies with high market capitalisation will be reduced, giving a more balanced view of the overall market. This will help in making more informed decisions and reduce the risk of investing in a particular company based on its current market value.
Furthermore, this new method will also benefit smaller companies. In the past, smaller companies with lower market capitalisation were often overlooked by investors due to their lower value. However, with the use of the 6-month average, these companies will have a fair chance to showcase their growth potential over a longer period of time, making them more attractive to investors.
In conclusion, the change to use the 6-month average free flow market capitalisation as a basis for decision making in the stock market is a positive step towards creating a more stable and transparent market. It will provide a more accurate representation of a company’s value, reduce market manipulation, and give a more balanced view of the overall market. As investors, it is important for us to embrace this change and use it to our advantage in making wise investment decisions.
