The stock market is somewhat like a giant auction. Yet instead of antiques and heirlooms, businesses or their stock, are up for grabs. These stocks are traded in exchanges. These exchanges are where traders and buyers either sell or purchase company shares. The stock market rides on what many investors deem ‘stock waves’. This refers to supply and demand.
When there are more investors than buyers, the stock market is driven up because of demand. The shares are rarer and investors will pay the higher price for them. If share sales are minimal, the prices fall very quickly. This is what makes the stock market fluctuate and this can happen by the minute or hourly, daily, weekly, monthly and annually.
There may be absolutely nothing wrong with a company but if a shareholder has many shares to sell at one time, he/she can drive the price right down. This can be due to lack of interest in purchasing shares at the time the stock shares go on sale. If there is no demand for the company or shares that are on offer, the seller will be forced to accept a drastically reduced price.
What truly affect the value of a company are its earnings. Earnings refer to profits and without profits, no company can survive. If a company fails to make money, it can’t stay in business. Stock analysts base the future value on a company on earning projection. If a company earns less than expected, the price takes a nose dive, if a company’s results exceed expectation, the price goes up.
But earnings are not the only factor in stock market fluctuations. For example, back during the ‘dotcom. Bubble’, the stock value of a host of companies rose. Yet they made no profit whatsoever. They did not hold though, the values shrank to a mere fraction of their temporary highs. Therefore, one can see that current earnings are not the only thing that influences the stock market. Stocks are capricious and can change in value so very quickly. A myriad of people tend to deem the stock market as extremely unpredictable.
Yet some entrepreneurs draw charts and keep an eye on price movements, assuming this will aid in determining when one should purchase shares of sell them. A country’s economic situation can have an impact on the stock market and so can panic, speculation, rumours, industrial sabotage and temporary fads. Individuals are often very much influenced by other people’s perceptions of things. Often times, one is influenced more by hearsay than actual truth.
Other times, one simply goes with the flow and put their heads in a financial noose simply because their acquaintances, family or friends, decide to venture into the world of stock market shares. Not every individual is logical, investment savvy or rational. Many fail to take the time to check what they hear as fact. Sometimes one has a grudge with a specific company and decide to blacken its name. Thus rumours spread and before you know it, a company has an unwarranted poor reputation. Investors back off and the value of stock takes a swan dive.
Those stepping into the world of stock market shares will eventually hear stock analysts mention ‘ceilings’ and ‘floors’. When stock appears to be stuck at a specific level and fail to rise in value anymore, it is said to have hit its ceiling. Once this occurs, its value usually plunges dramatically. When a price ceiling is above the market price, there is no direct effect. But a shortage is created when a price ceiling is set below the market price.The quantity demanded will basically exceed the quantity that can be supplied.
If people have to wait in line for a product, this causes what is known as ‘queuing’. Only those who are patient enough to wait will get the product. Price ceilings have a tendency to create black markets. When the price ceiling is set above the equilibrium, many consumers demand smaller quantities than what is being produced.
When a price floor is set, a minimum amount will be expected for service or goods. When the price floor is below market, no direct effect is noticed. Yet when the market price is beneath the price floor, a surplus will be created. Fluctuations in the stock market can also be governed by political unrest, war, terrorism and natural disasters which certainly affect the economy. Trying to figure out stock market fluctuations is similar to trying to choose the right numbers for the lotto.
“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it”.