Anybody know why stocks go up and down?

Question

Anybody know why stocks go up and down?

Answer 1

I used to have a similar musing when I lived in a smaller town. There was a furniture store that had a shop on the north side and a shop on the south side. The delivery trucks had the address of their respective shop on the door. One day I'm standing on the sidewalk and see the southside truck delivering some furniture to the north side of town and passing a truck from the north store headed to deliver on the south side of town.

Each person has his timing and reasons (and resources). When several investors see some news, probably reading the same story in the Wall Street Journal or BusinessWeek, and decide to start the day by buying into XYZ for whatever it was that interested them, then the extra bids in XYZ need an offer to match them. When people who hold XYZ are seeing that people are lining up to get their stock, the sellers smell an opportunity, "Let's see if they will pay a little more" they say as they up the price for what they are offering their stock. Still others are watching this and saying, "Hey, XYZ's moving, let's get in on this."

A sort of game of chicken results. The price is moving and going up, and some are thinking inside that this is a continuing thing, while others are thinking they will ride it a while and get off. When those riding it for the small increase get off, then there will be more shares offered for sale than there are buyers. That is when the opposite happens. People begin to settle for less just to dump their shares, after all, they reason, it is losing value.

Meanwhile, there are long-term investors that feel pleased when the price goes up, slightly stressed when the trading takes it lower, but largely simply sit on their shares. They own a piece of a going concern that is putting money to work and making money for them. When the price goes down, they may buy some more (which helps slow or stop a falling price, you may hear of people saying a stock has a "floor"). Similarly, they may have spotted the good news on their company and bought some more, until it reached an area of pricing that is a bit too high (which helps slow or stop a rising price, you may hear of people saying a stock has a "ceiling").

There are investors who invest. There are the opportunists who speculate or trade shares for a temporary price change. All in all, they are just like those furniture trucks, some are going north while some are going south, all for the same company, but in stocks when they pass there is a sale, a trade, the buyers have their reasons, the sellers have their reasons.

All the more simply, suppose teenagers are separated by gender and fed into a hallway at the same time. We could just marry them off as they came together: the next guy coming through the left door marries the next girl coming through the right door. You may find that disgusting. You want to get to know who you marry. You may want to explore your choices. In the process, you may find someone that has several other people after him or her at the same time, they saw the same potential as you. Then there is a dance where competitors preen and strut to make themselves look like the best choice. Some will offer to go to greater lengths to get their object of affection, some will distinctly and directly go those lengths. Others may see this and say the price is too high, and leave to shop for a mate elsewhere.

It is the same thing, some go cheap and others pay dearly to get what they want, and what they want tomorrow may not resemble what they want today. The same with stocks and dating, only with stocks it is mere arithmetic despite the dreams of averice and worries of disaster we sometimes attach to it.

Answer 2

What goes up must come down! But seriously, factors that have an impact on stock up/down include Political and economical stability; health of the industry/sector, particularly top ten market-sector leaders; sector's growth forecasts; M&A activities, etc.

Answer 3

more buyers than sellers, it goes up

more sellers than buyers, it goes down

simple as that

Answer 4

You can read all the text books you want, talk to all the analysts, a spend days listening to all the academia you want and you'll get hundreds of reason BUT in reality there is only one thing that drives the market - Buyers

If you have buyers, the market will go up, if the are no buyers the market will go down,

You can have the greatest company in the world with the greatest products but if no one wants to buy it, the stock will go no where.

Answer 5

Investors try to predict how well a company will perform in the future. The perception of all investors create supply and demand for a company's shares. The share price goes up or down depending on which perception wins out. If more people believe today that the stock is trading at a good price that will lead to good profits in the future when others believe the opposite, the price goes up. If more people are negative on the outlook of the company the next day, the stock price goes down. By the way, when the positive and negative people "vote" their perception of the stock in the market, it is based one share one vote. So, one large seller with lots of shares for sale can take the price lower even in the face of 50 small buyers.

The perception is influenced by such things as the overall economic performance of a country, of the industry, of the region in which the company operates, and of the company itself.