As the Korean stock market moves through uncertain times, I’ve taken a moment to reconsider the meaning of stock prices.

Stocks are securities issued by companies to raise funds, representing a company’s equity capital. The extent to which stockholders can influence a company's management depends on the amount of stock they hold, and the demand for control over management directly affects stock prices. Therefore, when a company experiences a battle for control, stock prices tend to rise. Additionally, when a company generates profits and distributes them to shareholders in the form of dividends, stock prices also increase. This is why stock prices typically rise during dividend season and drop after the ex-dividend date.

Ultimately, the key factors determining stock prices are management control and dividends. If you have no influence over management or cannot expect dividends, investing in such stocks is similar to investing in assets without intrinsic value.

Thus, stocks can largely be divided into two categories. Since individual shareholders generally have no influence over management, we can exclude that factor and classify stocks into those that pay dividends and those that do not.

For stocks that pay dividends, fundamental analysis, or fundamental analysis, is effective. On the other hand, stocks that do not pay dividends tend to move independently of fundamentals. If a company has never paid dividends in the past, it is impossible to predict whether the board will decide to pay dividends in the future, rendering models like the discounted cash flow (DCF) or forecasting future net income meaningless. These stocks are traded purely based on investor sentiment.

Investors in non-dividend-paying stocks often make decisions based on their own analysis. When stock prices rise, they might mistakenly believe their analysis was correct. However, this price increase is more likely driven by positive sentiment among investors rather than a proper assessment of the company’s potential or intrinsic value. When investors make a decision, the stock price is in an uncertain state, and it is difficult to claim that a price increase was “predicted.” If this logic holds, we would also have to consider people who win money at a casino as “investors,” since their decision-making process is no different from that of non-dividend stock investors profiting from stock price movements.

In conclusion, two approaches are needed for analyzing the stock market. Dividend-paying stocks should be evaluated using fundamental analysis, while non-dividend-paying stocks require sentiment-based investment decisions. In the latter case, this is not truly analysis but rather an investment decision based on individual perspectives.

Moreover, analyzing management control should not be overlooked. By closely monitoring changes in shareholding, you can gauge the demand for a particular stock, which can also help in predicting its price.

By analyzing stocks in this manner, you will be able to develop a more practical investment strategy.