Why Do Stock Prices Change

World News

We say the stock market is volatile. The money pours in
today and you can just as easily lose it all the next.  That’s why any sensible investor starts with
a stock analysis. To do that though requires an understanding of what causes
the ups and downs in share prices.

We say the stock market is volatile. The money pours in today
and you can just as easily lose it all the next.  That’s why any sensible investor starts with
a stock
analysis
. To do that though requires an understanding of what causes the ups
and downs in share prices.

DEMAND AND SUPPLY

When we come down to the basics, demand and supply is what
causes stock price fluctuations.

If there are not enough investors in a company, there will
be of course a surplus of shares. This in turn leads to a significant drop in the
value of the investment.

If however, there is a surge in demand, it would mean investors
are buying, so the price of the stock would shoot up. 

What it really boils down to though, is just how valuable people
think the company is.

WHAT STOCK PRICE
REFLECTS

Current Company Worth

How much money a company brings in is obviously an extremely
important factor. If a business isn’t doing well, it’s hardly likely that an
investor will choose to buy into it.

The company should have great past financials, which would
lend certainty about its ability to perform in the future.

What investors think
will happen

The company value isn’t always the motivation for investors
choosing to buy or sell. What it comes down to is peoples’ perceptions, their
influences, likes etc.

So what is it really that inspires either confidence or
doubt about a company in the mind of an investor?

CHANGING SENTIMENTS

There are plenty of reasons for an investor to back out of
an investment. Earnings can be affected by anything from social and political
changes to internal affairs.

Internals –Over
the course of time a company is likely to face a number of hurdles. Legal
issues, changes in management, they’re part and parcel of the corporate
world.  Though these new developments
don’t always end up hindering production, it’s our reaction to change that
causes the panic.

Government – When
power changes hands, there’s often a change in policies. This could mean a
company having to pay higher taxes or end of sops previously granted, new
regulations, etc. Either way investors get nervous when there’s political
uncertainty.

World events – With
every day comes new global changes. Inflation, disasters and better
technologies can make booming businesses redundant practically overnight.
Unless a company is able to adapt to the changing times, it will most likely
lose its ranking.

Although all the above are good enough reasons to make an
investor jittery, it is the herd mentality trait in humans that contributes the
most to the sudden ups in buying or selling. People hear of other investors
decisions and figure it safer to follow the crowd, and so begins the downward stock
price spiral.

AVOIDING THE RISK

While clearly it’s hard to do a thorough stock market analysisArticle Submission, it isn’t
impossible to balance the risk. To do that though you must first consider if
the company is solid and can withstand the odds.