The basic ways to analyze stocks Stocks unpredictability. From 1926 to 1997, the stock market returned an average annual 10.9 percent gain. The next best performing asset class, bonds, returned 5.2 percent. However, the stock can be volatile during the short term. Risky investments generally pay more than safe ones.
Investors demand a higher rate of return for taking greater risks.
That's one reason stocks, which are perceived as riskier than bonds, tend to return more than bonds. It also explains why long term bonds pay more than short-term bonds. The longer investors have to wait for their final payoff on the bond, the greater the chance that something will intervene and erode the investment's value. The biggest single determiner of stock prices is earnings. Over the short term, stock prices fluctuate based on everything from interest rates to investor sentiment to the weather.