Why do share prices change

Dear Fellow-Investor.

Stock prices change every day according to the markets activity. Buyers and sellers cause prices to change and therefore share prices change as a consequence of supply and demand. And it’s this dance between buyers and sellers, supply and demand that decides how valuable each share is.

If more people want to buy a share than sell it, the price goes up. Conversely, if more people want to sell a share than buy it, there’s more supply (sellers) than demand (buyers), and the price goes down.

Shares represent ownership in a company. So even if you own just one single share of a company, you own a part of it no matter how minute. Therefore, the price of a share indicates what investors feel the company is worth.

Stock prices can stay stable for months or fluctualt wildly which is refered to as volatility. There are hundreds of variables that drive stock prices, but the most important one is earnings. Attributable earnings can be described as the profit of a company after taxes and all other deductions i. e. it’s the net profit.

There’s often the misconception, especially with beginners, that a share that has risen will always fall, or a share that has fallen will always rise. Vice-versa, there’s also the misconception that a share that has risen will always continue to rise. This is not the case though! Stock prices reflect the interest of investors, not the law of gravity!

However, no market operates in a vacuum. In a borderless and interconnected world like the stock market, the slightest rumour or threat of war, rising oil prices or interest rate hikes for instance, can detonate a reaction on world markets which then react speedy and unpredictable.

To make matters worse, markets also react to less alarming news and events like a slip of the tongue. One wrong word said by mistake by an analyst or politician can cause a chain reaction and panic sending the markets into red territory.

But whichever way the wind blows, prices can rise as quickly as they fell especially after someones blunder saying the wrong thing. Once investors come to their senses again the stock markets can even begin to rise the same day again.

We may not be able to predict the forces that causes the markets to swing either up or down, but by analysing and understanding them, we will be better equiped to weather the lows and wait for the tide of fortune to turn.

It can definitely be said though, that it is important to always assess a company on it’s fundamentals. In the long term, good, solid and strong companies with good fundamentals usually return to their real value and strength, ironing out speculations based on rumours and innuendoes.

Yours in Successful Trading.

Ricky Schmidt

stockbreakthroughs. com