Understanding Stock Investment Price Changes
Stock prices go up and down, up and down, and that is pretty much all they do. But why do they? What invisible forces cause them to go up and down, and drive people into a buying or selling frenzy? There are many factors involved in this, as we shall now investigate in this article.
When many people wish to buy a certain stock and demand is high, that stock will begin to rise. When people begin selling a particular stock, that stock will then fall.
Investors in stock will always keep their finger on the pulse regarding stock in their portfolio. Any news or information which they receive, they will act on. After some news watching the stocks movements will also give an idea of whether the news was good or bad, if this isn’t immediately ascertainable. If the news is negative, then the stock will move downwards as people sell, while if the news is positive, the stock will begin to rise as people buy and demand increases.
One major misconception is that a companies actual Cap (Capitalization) value is directly related to the stock value. This isn’t so. To find out a companies capitalization value, the number of outstanding shares is multiplied by the actual stock value. Therefore a company with 500,000 shares with a stock price of $50 each would be 500,000 x $50 = $25,000000. If a second company had 2,000,000 outstanding shares with a stock value of $25, this would mean the company is worth 2,000,000 x $25 = $ 50,000,000. So never take at face value a company’s market capitalization based upon stock price – you also have to know the number of outstanding shares.
In huge part, a stocks value is determined by the earnings reported by a company. Growth in earnings inspires an investors confidence and causes them to flock to buy more shares in the company, causing the stock price to rise. Should a company report a loss, or worse still, repeatedly report losses, investors will begin to jump ship, causing the stock value to plummet.
There are so many other stock price defining aspects to take into consideration besides earnings. People who analyse every conceivable facet of a company and make many calculations to arrive at their decision of whether to invest or not, are known as ‘technical analysts’, while those who rely upon less in depth and more general methods such as news reports and earnings are known as ‘fundamental analysts’.
Stock prices and the stock market in general is a moving sea, ever changing. Some investors enjoy the challenge of picking stock to invest in while for others it is all about the money. If you don’t feel confident enough in yourself to pick good stock to invest in, you may wish to hire a stock investment broker or brokerage firm to do some, or even all of the technical work for you.