What determines the stock price?

What determines the stock price?

By Reynor Buenaflor

http://ebookwormonline.blogspot.com --> Feed your mind! You are what you read.

Ever wonder what causes the stock price to go up and down? Is it the economy? Is it the value of the company? Is it the inflation? Is it the perception?

I don't want to sound oversimplifying things. Looking at it in the economic perspective, it is the law of supply and demand that determines the price of the stock at the end of the day.

In the stock market, our trading commodity is the stock of companies. When the demand for a certain stock is great, the price of the particular stock tends go up. When a significant number of shares are bought, the price goes up. When the supply of a particular stock is great, the price goes down. When a significant number of stocks are sold, the price goes down.

In the volatile world of stocks, the bottom line is the law of supply and demand. The more the investors are pouring in and buying in stocks, the price goes up. The more investors are uncertain and selling shares, the price goes down.

As to what influences the majority of investors whether they are in the selling mode or buying mode is a different story. A lot of factors are involved logic, anticipation, hope, greed, fear and sometimes news.

Thus, the key to becoming a better investor is to know the sentiment of the market and to use the law of supply and demand to your advantage.

There are two body of knowledge that encompass in determining the market sentiments. Of course, they could not predict the market 100% of the time but knowing them will give you some advantage.

The fundamental analyst looks at the fundamentals of the company. They believe that when the company financials are good, the company is earning well, and the stocks are cheap, there is no other way but for the stocks to go up and vice versa. For a bad company with an expensive stock, the stock will go down.

On the other hand, the technical analyst studies the chart of the stock price. They believe in trends - the uptrend, the downtrend, and the sideways also known as the consolidation and make investment decisions based on the trend.

These are just tools. The better you understand them and use them; the better is your chance in the market.

P.S. Before putting your money in the stocks, do your research. Stock market can be unforgiving when you don't know what you are doing. According to Warren Buffet, if you don’t know how to put in paper why you are making your investment, then you think again before you invest.