Stock is often considered the riskiest type of investment vehicle. The reasoning behind the risky label is the fact that company stock prices can move up or down rapidly, and many internal and external factors can influence market value. Although there are many ratios and equations that attempt to predict the future financial performance of a company, no such formula or ratio can predict the exact future market value of a stock. However, investment professionals get paid big dollars to try and do just that. Those who watch the stock market and attempt to predict future performance of a stock try look at three categories to assist in predictions. Those factors are fundamental factors, technical factors, and market sentiments.

Fundamental factors simply defined are qualitative factors that represent aspects of a corporation's financial situation. Although there are many different fundamental factors, some of the more common include changes in assets, return on assets, change in return on assets, operating margin, cash flow, liquidity, financial leverage, and inventory turnover Typically, to calculate this information about a company a person would need their financial records, for example, their balance sheet or income statement.

Technical factors that influence the market value of stock are much more complex than fundamental factors. Things like inflation, economic strength of the market and competition, substitutes, incidental transactions, trends and liquidity all fall into the technical factors Things like insider trading are one of the disadvantages to technical factors. Insider trading is an illegal activity but often takes place when deals based on insider information if available. If the public was aware of such information it could significantly impact the market value of any security.

Market sentiment can be defended as the overall attitude of investors towards a security or finical market. Investment professionals calculate the CBOE Volatility, High/Low Sentiment Ratios, and Bullish Percentage to measure patterns in the market. For example, the CBOE Volatility or VIX measures how much risk investors are currently taking, The High/Low Sentiment compares the number of stocks making 52 week highs to the number of stock making lows, and the Bullish Percentage measures the number of stocks with bullish patterns based on point and figure charts.

Market sentiments, technical factors, and fundamental factors are used often in combination to predict future returns. Some of these research methods review the internal factors of a company and others look at external impacts. With all the research methods available to predict market performance, you will be advised when sitting with a financial advisor that "past performance is not an indicator of future outcomes" or some variation thereof. The Securities Exchange Rule 156 requires mutual funds to tell investors not to base their expectations of future results on past performance. This is a mandatory requirement from the Securities Exchange Commission because, regardless of the research performed or how well a company's income and balance sheet looks the market is simply too unpredictable.

Read the case above and write whether you think that their opinion is valid and how?