Common Reasons Why Stock Prices Change Irregularly
Day to day we observe the stock prices altering. But what really are the main causes behind these unstable changes of price movement? Stock prices easily change because of the market energy and forces. To make it very simple, this can be explained by the law of supply and demand. In the case that the stock are more preferred to be bought by the consumers rather than to sell them, the stock price will increase. On the other hand, if the people would prefer more to sell the products rather than to buy them, the effect would be an more increased supply than demand, and eventually the stock price will fall.
Yet I think it is better for us to define first what price is before we identify and understand the causes behind these certain patterns we have discussed earlier. Most of the theories of financial books define the term stock price as the current value of all expected earnings of the company, which is then divided by its present shares. In other words, this means that the definition of the price is dependent with the earning competency of the certain company. Commonly, companies obtain serious values out of a simple investment in estates since the ability for those estates to earn money is important to the company. Moreover, companies that are not earning so much today can still have a great share price because the stock price is entirely based on the future income of the company. I believe that there is no company that desires to lose money, but that all companies expect that their businesses would earn money someday. Thus, the income of the company could have in the future, the increase that the company expects and the time it would happen as goals all serve as factors that determine the price of a stock.
Hypothetically, when a person avails the shares of a specific company, they are certainly saying that they believe the shares of that company are underrated. On the other hand, by selling the shares, they believe that the stocks are overestimated and it is expected that the stocks would decrease in the future.
Below are the major reasons that cause these pattern of movements in stock price.
The first on the list is the information regarding the stock. As this new information spreads to the public, the market will alter the price either up or down depending on how the market sees the information will disturb the future income of the company.
Another factor is the human psychology which is so essential when assessing the future outcome of the company.
The last factor may be is the analysis of the supply and demand which gives opportunities to investors who are waiting to see the balance to come.