This might be a stupid question, but I don’t understand fundamentally why stock prices change.
I’ve read the varsity module on this. It says stock prices increase if a company gives good news. But why do people agree to pay more for a stock when there’s good news? How do shareholders benefit from the good news?
Maybe it’s increased dividends. But, for example, dividend yield for Reliance is 0.29%. Even if reliance gives some good news and this increases to 0.50%, that’s still very little return.
I know stock price increasing is also a return, but stock prices increase because people agree to pay more—why? Because they expect others to pay even more later? Why are all these people agreeing to pay more?
I’ve read the discussion here, it says people pay more for Eicher Motors if it “expects good results for Q1 of fiscal year 2014-15”. How are these Q1 results benefiting shareholders? What makes it worth paying more?
tomato price changes because supply and demand varies. but that’s not my question
there is inherent value to owning tomatoes (happiness from eating them). and also one can trade tomatoes to make a profit, that’s the trade value of tomatoes
so, there are two ways tomatoes are useful: one is inherent value, and another is trading value. moreover, the trade value depends on the inherent value: if nobody enjoys eating tomatoes, they will be worthless to trade
so, what’s the inherent value of owning stocks? why does someone want to own stocks? I can only see the trading value of stocks
do people buy stocks simply because they expect to sell at a higher price? no other reason?
yes but for many stocks dividend yield is negligible (even zero sometimes). you could replace stocks with Pokemon cards, and people could trade those — no inherent value, just hoping to make a profit from buying/selling based on the changing demand for different Pokemon cards
there’s also a Pokemon TV show, where different Pokemon fight each other. demand increases for Pokemon that win (company performs well). even though the cards are unrelated to the show—there’s no benefit to owning cards of winning Pokemon (no dividends etc.). but thik hai it makes people happy
that’s basically the stock market, right? if we ignore dividend paying companies?
your analogy can be applied to shares as well, as people feel proud owning peice of company but that’s not it’s intrinsic, in layman term own enough shares so you become prominent shareholder, then your views will directly effect how the company runs. ignoring free float etc
When the earnings of a company increase from say 100 ₹ to 200 ₹ in a year people start anticipatiing that soon it will go from 200 to 300 and then 400 and 500 and so on. And in that anticipation they are willing to pay a higher price for that stock and rush to buy it creating huge demand. Ultimately a point comes when a few of them realise that this is insane and they start to book profit. As a result price starts correcting and the stock gets back to its true value.
Vice versa if the earnings fall
Actually it just intraday moves thats making people scared so basically not everyone have that much money to create bottom or low in any stock only big players can decide top or bottom of stock but at the same time everyone wants to benefit from it most of the time positions are taken in step wise manner pyramiding structure like suppose you are taking position at 100 rs then most of the time they take position at 110 again 130 and so on and when price strats falling they clear the quantites from first level 100 rs and their stop loss becomes their last invested position and so on
Leave it just read this
in short you can never buy at perfect level you can hold or you can take loss but its upto you and everyone likes discount suppose i told you you getting i phone at the price of one plus you will like to grab that offer so the only thing you can do when stock is falling dont take any position not even at first support bcs you can never trust the first support always wait for second support or retest and invest only when you see some consolidation at particular price also check delivery percentage and so on and when someone is selling someone is buying its just somone taking position against you and when one thing is available at only one person like mutula funds get sips every month so they dont wait for particular moment you can never know low or high of market so i hope you understand
just keep in mind its not necessary if somone is buying they are loosing their plans can be different thats why they taking position against you and you dont know everyone risk capacity and amonut they can invest
but how does the company’s earnings benefit stockholders? company could triple its earnings but it means nothing for stockholders if they don’t give dividends? is the expectation that the company will give dividends, so they buy the stocks?
Every day, the market influences stock prices. This means that stock prices fluctuate in response to changes in supply and demand. A stock’s price rises if there is more demand than supply for it. A stock’s price would fall if more people wanted to sell than buy it, resulting in a surplus of the stock on the market.
Stock prices are regulated by supply and demand economics. When the demand for a stock exceeds supply, there will be a rise in the price of a stock. The more drastic the demand-supply gap, the higher the stock price in the market.
Simple - demand and supply.
The demand and supply theory is a very important theory to determine price values of most financial markets, especially stocks.
There is demand for shares when more individuals desire to purchase a stock of a company, invest or trade it. This demand pull causes the price of the specific company stock to rise. Conversely, if more individuals wanted to discard a company stock that they have been holding, by selling the stock, then there would be more supply of the stock in the market than demand. This supply push causes the price to decrease.
Demand and disinterest of a company (and thereby their stocks) depends on factors like the company performance, product manufacture, quality, customer service, ethics, etc.
