Stock Prices Go Up and Down. I’ll give you the short answer first!
Stocks go up because more people want to buy than sell. When this occurs, they begin to bid higher prices than the stock has been trading. On the other hand, stocks go down because more people want to sell than buy. In order to quickly sell their shares, they are willing to accept a lower price.
Having said this, we’ll take a look at the various reasons that cause traders to want to buy or sell a stock.
It is possible to look at the financial statements of a company and determine what the company is worth. Investors who take this approach are said to examine the company’s “fundamentals.” They attempt to find an undervalued stock—one that is trading below its “book value.”
They feel that sooner or later, other traders will realise that the company is worth more than the current price and begin bidding it up.
Another investment psychology is called the “technical approach.” This is when traders closely examine charts of the stock’s past performance looking for trends that they feel will be repeated in the near future.
These traders also look at what is happening in the market as a whole, trying to anticipate the effect it will have on an individual stock.
Sometimes companies trade at half their “book value,” while other times they may trade at double, triple, or even higher. When this happens, it can create some sudden and large price swings. This volatility is what makes it possible to make large profits in the market. It is also responsible for huge losses.
The stock market is essentially a giant auction where ownership of large companies is for sale. If some investors think that a particular company will be a good investment, they are willing to bid the price up.
By the same token, when many investors want to sell a stock at the same time, the supply will exceed the demand and the price will drop.
Watching the stock market can be likened to watching a ball bounce. It goes up and comes down and then goes right back up. This can be extremely frustrating for many investors who want it to go up in a steady pattern. The experienced trader profits from volatility in the market as a whole and in individual stocks.In the absence of a lot of experience, the individual investor needs a reliable source of information and direction. The daily stock market recommendations from www.stock4today.com can supply this need.
Many investors (as opposed to traders) have a “buy and hold” philosophy.
This would work well in a constantly rising market. Unfortunately,
the stock market does not go up in a straight line. There are ups and downs that frustrate this type of investor. Many investors today have become “traders,” buying and selling based on market and individual stock fluctuations.These traders make money in any market-up or down!
Another well-known investment site, www.fool.com, lists the following reasons for stocks going up and down:
Why Do Stocks Rise?
* expanding sales and profits
* a fantastic new president has been hired to lead the company
An exciting new product or service is introduced.
* More exciting new products and services are on the way.
The company lands a big new contract
* an excellent press or television review of a new product
The company is going to split its stock.
* Researchers discover that the product can be used for something else.
A well-known investor is purchasing stock.
* A large number of people are purchasing stock.
For instance, an analyst upgrades the company, changing her recommendation from, for instance, “buy” to “strong buy”
Other stocks in the same industry go up.
A competitor’s factory burns down.
A company that wins a lawsuit
More people are buying the product or service.
The company expands globally and starts selling in other countries.
* The industry is “hot” —people expect big things for good reasons.
* The industry is “hot” —people don’t understand much about it, but they’re buying anyway.
* another company acquires the company
* The company may be purchased by another company.
The company is going to spin-off part of itself as a new company.
* rumours
Why do stocks fall for no apparent reason?
* profits slipping, sales slipping
* The company’s top executives leave
A famous investor sells shares of the company.
* an analyst downgrades the stock’s recommendation, possibly from “buy” to “hold”
The company loses a major customer.
* A large number of people are selling their shares.
A factory burns down.
Other stocks in the same industry go down.
Another company introduces a better product
There’s a supply shortage, so not enough of the product can be made.
A big lawsuit has been filed against the company.
* Scientists discover that the product is dangerous.
So fewer people are buying the product.
The industry used to be “hot,” but now another industry is more popular.
Some new laws might hurt sales or profits.
* a powerful company enters the business
* rumours
* for no apparent reason