What makes stock prices go "up" and "down"?
Stock prices change every day because of market forces. By
this we
mean that stock prices change because of “supply and
demand”. If more people want to buy a stock (demand) than
sell it
(supply), then the price moves up!
Conversely, if more people wanted to sell a stock than buy it, there
would be greater supply than demand, and the price would fall. (Basics
of economics!)
Understanding supply and demand is easy. What is difficult to
understand is what makes people like a particular stock and dislike
another stock. If you understand this, you will know what people are
buying and what people are selling. If you know this you will know what
prices go up and what prices go down!
To figure out the likes and dislikes of people, you have to figure out
what news is positive for a company and what news is negative and how
any news about a company will be interpreted by the people.
The most important factor that affects the value of a company is its
earnings. Earnings are the profit a company makes, and in the long run
no company can survive without them. It makes sense when you think
about it. If a company never makes money, it isn't going to stay in
business. Public companies are required to report their earnings four
times a year (once each quarter).
Dalal Street watches with great attention at these times, which are
referred to as earnings seasons. The reason behind this is that
analysts base their future value of a company on their earnings
projection.
If a company's results are better than expected, the
price
jumps up. If a company's results disappoint and are worse
than
expected, then the price will fall.
Of course, it's not just earnings that can change the feeling people
have about a stock. It would be a rather simple world if this were the
case! During the “dotcom bubble”, for example, the
stock
price of dozens of internet companies rose without ever making even the
smallest profit. As we all know, these high stock prices did not hold,
and most internet companies saw their values shrink to a fraction of
their highs. Still, this fact demonstrates that there are factors other
than current earnings that influence stocks.
So, what are "all the factors" that affect the stocks price? The best
answer is that nobody really knows for sure. Some believe that it isn't
possible to predict how stock prices will change, while others think
that by drawing charts and looking at past price movements, you can
determine when to buy and sell. The only thing we do know is that
stocks are volatile and can change in price very very rapidly.
Just remember this: At the most fundamental level, supply and demand in
the market determines stock price.
There are many types of techniques and methods that investors use to
figure out whether a stock price will go up or down! We will try to
give you an introduction to these techniques in this article.
But before we go into the concepts of stocks picking, and the techiques of analysis, let us understand one last basic thing....
Next - What are the Sensex & the Nifty? >>
<< Previous - Why do companies issue stocks?
| Other articles YOU
may like... How to start a company? How to make money in the stock market? How to manage your money? How to manage time? How to speak English fluently? |
Table Of Contents
- What are stocks?
- Why do companies issue stocks?
- What causes stock prices to change?
- What are the Sensex and the Nifty?
- 3 important things that every investor MUST remember!!
- How to decide which stocks to buy?
- Basics of fundamental analysis!
- Earnings
per share (EPS) ratio and what it means?
- Price
to earnings (P/E) ratio and what it means?
- PEG
ratio and what it means?
- Inflation
and how it silently eats your money!
- Brokerage and taxation…