It's important for investors to understand what drives stocks and the market up and down
Tim writes about technology and consumer goods stocks for The Motley Fool. He's a value investor at heart, doing his best to avoid hyped-up nonsense. Follow him on Twitter: Follow @TMFBargainBin
What can affect stock prices?
High demand for a stock relative to supply drives the stock price higher, but what causes that high demand in the first place?
The big picture is what matters
Long-term investors, like those of us at The Motley Fool, don't much care about the short-term developments that push stock prices up and down each trading day. When you have many years or even decades to let your money grow, things such as analyst upgrades and earnings beats are irrelevant.
Who said "Investing should be boring"?
Legendary investor George Soros once said, “Good investing should be boring”. But an increase in volatile themes today suggests this maxim has gone ignored by at least some market participants.
What is the innovation readiness gap?
BCG uses several metrics to gauge a company’s “innovation readiness,” such as the strength of its talent and culture, its organization ecosystems, and its ability to track performance. According to BCG’s analysis, only 20% of companies surveyed were ready to scale on innovation.
What is the poorest country in the world?
Here’s a glance at the quality of life in the poorest country, Burundi: 80% of the population works in agriculture. 1 in 3 Burundi ans are in need of urgent humanitarian assistance. Average households spend up to two-thirds of their income on food.
How many people will be in poverty by 2030?
Over the last 30 years, the number has been steadily decreasing — by 2030, an estimated 479 million people will be living in extreme poverty, which according to UN population estimates, will represent only 6% of the population. That said, economic inequality between different regions is still prevalent.
Does GDP per capita increase?
GDP per capita has steadily risen globally over time, and in tandem, the standard of living worldwide has increased immensely. This map using data from the IMF shows the GDP per capita (nominal) of nearly every country and territory in the world.
Stock prices
Unlike most auctions, in which prices start low but then rise until a sale is made, buyers bid prices up or down as they negotiate trades with sellers. Supply and demand are the primary drivers of stock prices. If there are more shares of a stock available than investors want to buy, that stock’s price drops.
Fun fact
Twitter can have a big influence on the stock market. In 2018, former Tesla chair Elon Musk tweeted that he was taking Tesla private at a price of $420 a share. Tesla was trading at $340 a share at the time.
Types of stock trades
The price at which you buy and sell shares may also depend on the type of stock trade. There are two main types of stock trades:
Why do stock prices go up and down?
Stock prices go up and down based on supply and demand. When people want to buy a stock versus selling it, the price goes up. If people want to sell a stock versus buying it, the price goes down. Forecasting whether there will be more buyers or sellers in a stock requires additional research, however. Buyers are attracted to stocks ...
Why do stocks go up?
Sometimes, stocks go up simply because they have been going up. In a strategy known as momentum investing, investors buy shares in rising stocks and sell shares in those that are following. This momentum builds on itself and continues to drive rising share prices higher.
What is stock in business?
A stock is simply an ownership share in a physical company. Stock shares allow investors to buy or sell an interest in a company on an exchange through a bidding process. Sellers indicate prices at which they are asking to give up their shares, and buyers similarly post prices at which they’re bidding to buy shares.
Who is John Csiszar?
After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
What does earnings per share mean?
Earnings per share represent a company’s profitability. Generally speaking, investors are more interested in companies with rising earnings. Earnings per share is also a metric for comparison to other companies in a particular industry.
What is the P/E ratio?
The P/E ratio, or price/earnings ratio, is another metric for comparison that investors use to value stocks. The P/E ratio simply consists of a stock price divided by its earnings.
What is technical analysis?
Technical analysis is an alternative way to determine supply and demand for a stock using historical and other factors. Technical analysis relies on price movements only, rather than other valuation factors.
What is supply and demand in a market economy?
In a market economy, any price movement can be explained by a temporary difference between what providers are supplying and what consumers are demanding. This is why economists say that markets tend towards equilibrium , where supply equals demand. This is how it works with stocks;
Why are interest rates important?
First, interest rates affect how much investors, banks, businesses, and governments are willing to borrow, therefore affecting how much money is spent in the economy.
Is the stock market a living entity?
"The market," so to speak, is not a living entity. Instead, it is just shorthand for the collective values of individual companies.
Who is Mary Hall?
Mary Hall is a freelance editor for Investopedia's Advisor Insights, in addition to being the editor of several books and doctoral papers. Mary received her bachelor's in English from Kent State University with a business minor and writing concentration.
