What makes shares go up and down

Amazing right? You simply… buy low and sell high. This worn-out phrase has been around forever. However, the recent winners had a tendency to do better than the recent losers in the short run.

You do not want to get stuck with a loser in your portfolio. This is why a stop point is important. Once the trade has gone against you, you need to have a system for selling it. Whether that is a percentage loss or a time frame is up to the individual investor. Losers in your portfolio not only influence your trading mentality but they are a drag on your portfolio. The herd determines the trend and the trend is your friend. No one is bigger than the herd and no one can run against the trend.

The herd can run against you and make you bankrupt before it changes its mind. This is why patience is so important. There should never be a rush to make an investment and there is nothing wrong with sitting in cash until a good deal comes along. Many argue that cash-flow-based measures are superior. The way earnings power is measured may also depend on the type of company being analyzed. Many industries have their own tailored metrics. Relatively mature companies are often measured by dividends per share, which represents what the shareholder actually receives.

The valuation multiple expresses expectations about the future. As we already explained, it is fundamentally based on the discounted present value of the future earnings stream. Therefore, the two key factors here are:. A higher growth rate will earn the stock a higher multiple, but a higher discount rate will earn a lower multiple. What determines the discount rate? First, it is a function of perceived risk.

A riskier stock earns a higher discount rate, which, in turn, earns a lower multiple. Second, it is a function of inflation or interest rates , arguably. Higher inflation earns a higher discount rate, which earns a lower multiple meaning the future earnings are going to be worth less in inflationary environments.

In summary, the key fundamental factors are as follows:. Things would be easier if only fundamental factors set stock prices. Technical factors are the mix of external conditions that alter the supply of and demand for a company's stock. Some of these indirectly affect fundamentals. For example, economic growth indirectly contributes to earnings growth. Technical factors include the following. We mentioned it earlier as an input into the valuation multiple, but inflation is a huge driver from a technical perspective as well.

Historically, low inflation has had a strong inverse correlation with valuations low inflation drives high multiples and high inflation drives low multiples. Deflation , on the other hand, is generally bad for stocks because it signifies a loss in pricing power for companies. Company stocks tend to track with the market and with their sector or industry peers.

Some prominent investment firms argue that the combination of overall market and sector movements—as opposed to a company's individual performance—determines a majority of a stock's movement.

For example, a suddenly negative outlook for one retail stock often hurts other retail stocks as "guilt by association" drags down demand for the whole sector. Companies compete for investment dollars with other asset classes on a global stage. These include corporate bonds , government bonds, commodities , real estate, and foreign equities.

The relationship between demand for U. Incidental transactions are purchases or sales of a stock that are motivated by something other than belief in the intrinsic value of the stock. These transactions include executive insider transactions, which are often pre-scheduled or driven by portfolio objectives. Another example is an institution buying or shorting a stock to hedge some other investment.

Although these transactions may not represent official "votes cast" for or against the stock, they do impact supply and demand and, therefore, can move the price. Some important research has been done about the demographics of investors.

Much of it concerns these two dynamics:. Stock prices move up when there are MORE buyers than sellers.

Example hungry humans wanting to buy 1 chicken each. There are only 10 sellers. Too much demand and supply. You ask why? I wont explain the reversed effect, you get the picture.

Next, ideally, we love to think when the company is doing good, the shares would go up, when the company has a problem, the shares would drop. BUT NO. Of course I can. No news on the company. But I need to sell shares to buy a new house. I will sell ALL shares at whatever prices I can get. So to sum it up, price of shares is influenced by the supply and demand model WITH factors but not limited to… company earnings, global economy outlook, personal reasons, war, government instability, abundance of money, attractiveness of other investment options, marketmakers.

Those that ask when a new product is launched, why the share prices will rise. Earnings per share. What is that? Guess what the new share price would be? Now watch supply and demand in action. Price climbs to , the smart investors calculate this. Starts selling em. Your question as to why sometimes a firm has a new product and yet the price drops. Because at the same time, investors are cautious because there is a war going on, the government is about to run out of money, terrorism.

They feel unsafe, even though their stocks are going to be performing better soon, they still would like to get rid of all stocks.

Toyota having problems yet the price dont drop. What do you expect? Tomorrow toyota dissapears from the world? Big firms solve problems and get over it. During this time, the global economy is doing well, everything is recovering, investors are all smiling and happy. Hope that explains everything. And no, you dont make money by going with the crowd.

I have been planning to start investing in the stock market but do not know how to make money out of it until I read your post. I had imagined that the stock market requires enough work to be a whole profession by itself and you have shown me just that. Dit, Volume has nothing to do with how much losses it damages to your mutual fund.

When you see the stock market go up with a low volume, you can regard that as a fake positive. Meaning, a small group of people are trying to move up the market. When you see the stock drops a lot with a high volume, that is a message that, this is the real negative. Alot of people are trying to pull down the market. After a market has crashed, you do not buy when the market is going up with low volume. Same with if the market is going up. Up up up up then suddenly the day ends with a negative with low volume.

What does this means? This is all about Technical Analysis…. U r rite, stocks go up and down based on basic supply and demand… But Fundamental Analysis also very important to choose best stock….

Im using both method…. Warren Buffett is the best investor in the world and one of the richest man in the world…. Why does stock price typically turn before the economy?

Is it caused by supply and demand or expectation from economic indicator? For sure we know that stock price is the leading indicator, but why? If i put money in a mutual fund company, will i be the owner of shares which the mutual fund company buys? Or is it the mutual fund company owns those shares?

I have a question. Where can I go on the web to find companies that have very few stock shares i. Paying a high multiple initially can wipe out the return from dividends and earnings growth if the multiple meaningfully compresses over time. Stock prices can move for any number of reasons over the short term. Political issues, economic concerns, earnings disappointments and countless other reasons can send stocks lower or higher.

But over the long term, stock prices will be driven by just a handful of fundamental factors such as earnings growth and changes in valuation. Be careful to avoid overvalued stocks that might soon be headed for a fall, and keep these long-term return drivers in mind amid the market's ebbs and flows. Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision.

In addition, investors are advised that past investment product performance is no guarantee of future price appreciation. Shopping mall shooting in Idaho leaves 2 dead, 4 injured. McAuliffe and Youngkin are in a dead heat with one week to Virginia governor election, poll shows. Load Error. Replay Video. Skip Ad. Microsoft and partners may be compensated if you purchase something through recommended links in this article.

Found the story interesting? Like us on Facebook to see similar stories. I'm already a fan, don't show this again. Send MSN Feedback. How can we improve?