|
Why
Share Prices Go Up and Down
If you didn't know
better, you might think the share market had a mind of
its own. Simply watch the share prices for a week and
chances are you'll see them drop or rise sometimes by
dramatic amounts. Trying to make sense of those shifts
might seem difficult, but closer examination reveals
that definite forces shape share prices. Share analysts
make their living charting these forces and the effect
they have on companies, industries and national
economies. An understanding of these forces can do more
than help you formulate an investment strategy - it will
also help you see how events can shape everything from
the unemployment rate to interest rates.
The price of a company’s
share is directly linked to the fortunes of that company
or, to be exact, the perceived fortunes of the company.
That is, what share investors think will happen to the
profitability of the company. When a company is
experiencing high profits the share price will generally
increase as more people want to buy a share of the
company and share in its success. Similarly, as a
company's profits decline, the share price will probably
fall, as existing shareholders sell their stock, perhaps
to move their investment to a more profitable company.
Obviously, it is better
to buy your shares when the price is lower, rather than
when share prices increase. Buy low and sell high is the
general rule.
Below are a few of the
factors that affect the price of a share:
Next:
Monitoring the Price of Shares
|
