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The following article is part of an ongoing educational series. The previous article can be found here.

A bewildering array of factors affect the level of the sharemarket and trying to keep track of them all is a sure route to chaos.

In fact, in 1959 an astrophysicist by the name of Osborne published a paper in which he compared the movement of share prices to Brownian motion - the random movement of molecules as they collide with one another in space.

One of Osborne's conclusions was that there are so many forces acting on share prices at any one moment that price movements are wholly unpredictable.

But don't panic.

While it's true that in the short term the behaviour of share prices can be utterly confounding, understanding a few key drivers can help you to start making sense of it all over time.

But first thing's first.

Your main focus should logically be on digging up news that affects a company's ability to earn a profit into the future. This involves a lot more than news about the company itself, and includes factors like:

• the industry in which it operates;

• its consumer markets;

• shifting social and political demographics;

• changes in government policy and regulation, particularly the tax system, and;

• structural changes in the world economy.

Done thoroughly, this research takes time and effort and you'll have to think laterally about how developments in any number of industries, companies and economies may affect a stock's ability to produce a return for you.

This type of information is essential for assessing how a particular stock is likely to perform in relation to its current price and to other shares. But it may reveal little about how the sharemarket itself is likely to perform in relation to other investments like bonds or property.

Why is this important? Because it will help you work out whether it's a good time to have a large proportion of your money in shares to take advantage of a boom - or whether it's wiser to be "cashed up" to cushion the blow from a falling market.

This doesn't mean that you should swing between extremes, but fine-tuning your allocations to the different types of investment classes can make a big difference to returns from your overall investment portfolio over time.