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In your inbox every Tuesday. A valid email address is required. You must check the box to agree to the terms and conditions. Thanks for signing up! Sign up. Follow Us Facebook externa link icon. Twitter externa link icon. Think of the stock market as a giant auction, with investors making bids for one another's stocks and offering to sell their own all at the same time. Because there is a limited supply of shares available for sale, bidders must compete with one another for access to shares.
The more intense the interest in a stock, the more bidders there are attracted to it, and the less interested current shareholders are in selling their own stock. As a result, potential buyers must bid higher to buy the stock, and the stock price moves up.
This works the other way as well. When interest in a stock declines, fewer competing bids are entered, holders are more interested in selling their stock, and the lower the winning bid price must be.
But what determines investors' interest in a stock? In short, information. Information comes in many forms: earnings reports, press releases, news stories, court filings, Tweets, general hype, you name it. Investors, whether consciously or not, incorporate each new piece of information they come across into their impression of a stock. Of course, every investor reacts to new information differently, and those reactions can range widely from apathy to panic to euphoria.
Depending on their reaction, investors may choose to buy more shares, hold the shares they have, or even sell. In turn, these reactions are incorporated into the share price, causing fluctuations in price. Interestingly, the change in share price itself is information that is incorporated by subsequent bidders, and the cycle of information-reaction-price move-information repeats once again.
When supply of a stock is limited and interest is high, a stock's price can skyrocket. Much of this rise was driven by a limited supply of publicly available shares, as most of the company's stock was still privately held by Peter Thiel's Privateer holdings, as well as a limited availability of other publicly traded cannabis producers for investors to purchase.
Combining the market's rabid interest in investing in pot with an artificially limited supply of shares led to Tilray's rapid ascent.
However, as other pot companies began publicly trading, demand waned, and when the lockup for private equity investors expired in January , the number of shares on the public market surged, pushing down the stock. The law of supply and demand remains undefeated. If you can imagine this cycle of supply and demand being repeated over and over again among millions of investors and stocks across the world each and every trading day, you'll have a working idea of the mechanisms that influence daily fluctuations in stock price.
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The information on this site does not modify any insurance policy terms in any way. Stock prices can move around a lot. Software giant Microsoft, a widely followed and fairly well understood company, recently hit a week high that was about 37 percent above its week low. Legendary Wall Street analyst and mentor to Warren Buffett , Benjamin Graham, once said that in the short run the market is a voting machine, and in the long run it is a weighing machine.
That means that over short periods of time — a day, a month or even a year — stock prices can move for just about any reason at all. One area that has a big influence on stock prices is data related to the overall economy. Whether the economy is growing faster than expected or slower can send stocks higher or lower. Concerns about recessions, or economic slowdowns, can also send shares tumbling as traders worry about their negative impacts on corporate earnings.
A whole segment of market participants utilize technical analysis to determine which stocks should be bought and when. 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. Similarly, in times of great optimism, stocks tend to trade up, even when considered overvalued by traditional standards. Any economic factors that can hurt corporate earnings can also depress stock prices. Inflation is one example.
Historically speaking, high inflation has tended to drive stock prices lower. This is because inflation causes higher prices, which makes it more expensive to run a business. 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. Also known as relative strength investing, this strategy follows market trends to select stocks rather than other traditional valuation metrics. In spite of all the ways to evaluate stocks, the truth is that no one can say with absolute certainty when a stock will go up in value or down.
However, in the long run, the trend in the overall stock market is up. Your best bet when looking for stocks that will go up in price is to evaluate factors that tend to drive prices higher, including those described above:. You can also use these factors to help you know when to sell stocks as well. The bottom line when it comes to investing is that although certain factors can help predict stock movements, the best approach is to have a diversified portfolio.
Rather than putting all your eggs in one basket, owning a number of different stocks can help smooth out the ups and downs of your individual portfolio.
We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct.
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