How does the price of shares in stock market varies and who handles this?

Question

Share bazzar

Answer 1

Hey Kartik,

The Stock Market is a funny thing!

It is much like a Used Car.  

The person that sells the stock is convinced that it has topped-off.  Meaning that it will not be worth the same dollar amount in the very near future.

The person that buys the stock is convinced that the SAME stock is poised to turn up in value in the future.

Another aspect of the Stock Market is something called IPO.

An IPO is an Initial Public Offering.  This is when a company goes to the public, meaning that a company that has been privately held, needs more cash/capital and decides to sell their stock on the open stock exchange.  The "Value" is set by analysts who think that they know more than what the company sets there stock price at.  Let's take Microsoft.    An easy example would be that there were 2000 stocks, 1000 would be shared by the principals at Microsoft and the remaining 1000 would be sold to the public.  When they went public (IPO) the stock sell price was something like $12.00 per share and the amount of shares was more like 1,000,000 - well the stock was in so much demand that as it was being sold, it went from $12 per share to over $150 per share in a matter of DAYS.  This made MANY people rich (Those that were held stock as employees/principals and those that bought the stocks from the IPO.)

Only a licensed stock broker may sell on the many stock exchanges through out the world.  If you wanted to sell your stock you would contact your broker and let him/her know how many you wanted to sell and what were your Top and Bottom prices.

If the stock was not in that range, your stock broker would contact you and ask your advice.  The same thing would happen with a purchase.  You would tell your broker how much you wanted to buy of what stock or what CLASS of stocks (A Class is a series of a particular stock or a type (Blue Chip is an example) of stock that you wanted to buy.

MANY FACTORS will have an effect on a stock price:  

1) The profit that a company makes during any given time period.

2) The Government regulations or laws that might affect a company (If it were a defense contractor, maybe the government decides not to buy a type of airplane or if the company made drugs, the FDA may decide not to approve a certain drug that the company wants to make.)

3) A financial report may come out that show that the economy is not doing as well as anticipated (A downturn in the stocks) or is doing better than expected (an Up-turn).

4). Weather factors:  Hurricanes did a number on the availability of oil and certain tropical crops.

5)  Government stability.  If a new government comes into power it is possible that the countries business will not have as favorable outcome had the previous government stayed in power.

6). Principals and Deceit.  When it was known that Martha Stewart had done insider trading (Buying or selling stocks with information that is not available to the general public), not only did the stock that she was trading lose its value, but her own company stock lost nearly 80% of it's value!  When Enron Corporation was revealed that they lied about their profits, their stock went from $134/per share to $.16/per share.

AND

7).  Public perception.  If the company is BELIEVED to be on the right track to making money, even if they have not made money in many years, that can make their stock surge.

I will not go into areas like Futures, Hedge Funds, Speculation, Poison Pills or Buy Downs.

What I have always found interesting, is in several well published studies, a Monkey has been able to PLAY the stock market as well as the EXPERTS.

I know I was long winded, Sorry!  The stock market can be fun and it can be mystifying.  MOSTLY, it is meant to be the sign of a countries inner health.

I wish I could've said this in fewer words.

Thank you for your time,

James in San Diego