Why Stock Prices Move?
Why stock prices move is a simple and a complex question to answer. If we try to answer this simply, we have to say that the price either goes up or goes down depending on the performance of the company, the state of affairs of the industry in which the business functions, and the current economic condition. But when trying to complicate the answer, we would have to say that the price fluctuates based on market perceptions about where the industry and the business, and thus the stock’s price is heading. If the perception is positive, then the stock price goes up, and just the opposite happens when the perception is negative.
Stock Price Movements Based On Perception
Now interestingly, this market perception could be accurate or it could be mistaken. Perhaps there was a meeting at the company and the board took a decision, or perhaps the company missed a target, or perhaps the company was able to clinch a big deal – all of these have an impact on the stock’s price. May be the company’s biggest competitor has not done well. This might have two impacts. Firstly, the price may shoot up because with the other business failing, the main beneficiary could be the stock in question. Or the price may even go down as investors can become worried about the financial health of the other businesses in the same industry as well. Thus, it is always difficult to predict where the stock price will be headed. But one thing is certain and this is that, there will be an impact, and the stock’s price will see some movement.
How Perception Moves In The Stock Market?
The perception about a stock in the market can change very quickly – just one incident can be enough to make a big impact. However though the perception can change rapidly, the stock’s price may not change that quickly. This is because to see a noticeable shift, the perception must affect enough number of people, and thus the change happens slowly as the knowledge passes through the market.
In the beginning just a few people have the knowledge and they are almost always the insiders or the market analysts and those who are following the stock closely. But as the information passes, brokers advise the investors to either buy the stock or sell it, and many of these investors in turn tell this to others. In no time, a huge number of people are affected and this ensures that there is a noticeable impact on the stock’s price.
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I agree totally with a mind set of a trader. Your points on the up and down movement of stocks are fine. But as a value investor, I never give any importance to the daily movements but totally relay on the fundamentals of the company. For the information of following readers, I share my approach, research on a stock based on Product monopoly, durability, management efficiency and earning power for medium and long time. It should not be a commodity based stock.
Once found a right candidate, I will wait for the right time to come to purchase. It may take years some time but in this period, I consider as a time to accumulate money for my purchase. if purchase, I am buying lot but not some. Once bought, it will generally with me for ever if I found there is no threat to the fundamentals of the company where I have invested.
Sure, I have a habit of monitoring stocks once or twice in an year and which including the study based on the information I have collected to purchase the stock to identify any changes on the factors supported me to invest on the business. Sounds good right?