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Stock market investment: factors affecting stock prices

By Edited Nov 14, 2015 0 0

When you are new to stock market investment, you probably puzzle over the daily price movement.

You wonder why some people are willing to sell at a loss, and why some people are willing to buy at a high price.

You probably hope that you can time the market to get the best price.

You hope to master the art of predicting movement in stock prices.

What factors cause the movement in stock prices? How can you make use of the knowledge in stock market investment?

1. International influence

In an economy crisis, you will see the effect of international influence.

If the Shanghai stock market falls continuously for three days, after an announcement by the Central Bank, you can expect the stock markets worldwide to suffer a dip too.

It is very rare for the stock markets in Shanghai and Hong Kong to fall, and yet the stock markets in Europe and US gain.

It does not matter that you stay miles away from China. It does not matter that most of the listed companies in the local stock market are local companies, the share prices will drop.

The investors see the world as a global village. They need time to analyze the announcement by the Central Bank in China. They are conservative, and prefer to fear for the worst. That is why they dump stocks, and bring the stock markets down.

2. Anticipation

When a company hints that it is having a good quarter, the market anticipates a good quarterly report. The anticipation of a better earning sends the stock price up.

The same goes to anticipation of a merger or acquisition plan.

The weird thing is that the stock price holds steady or even falls when the company releases the quarterly report.

Since the report meets the expectation of the investors, they see no reason for holding on to the stocks or buy the stocks.

However, if the earnings is less than anticipated, the share prices will fall sharply.

3. Change in management team

If one of the senior management suffers a heart attack, the share price of the company will fall.

That is why you must read newspaper, internet, and company announcement to keep up with the movement in management team.

Stock market investment is not a rocket science. However, stock market investment requires you to read widely and wisely.

You must develop the thinking of an investor, and translates the news into stock market strategy.

4. Industry

Some industries perform better in an economic boom.

When the economy recovers, the share price of the listed companies in the same industry goes up.

Within an industry, the company that has better earnings will command a higher share price. The current earnings, and potential earnings are factors for movement in share price.

The first rule in stock market investment is to know what you buy. When you buy into a company, you have to know how it makes money, and its relative strength in relation to those in the same industry.

5. Share buyback

When a company announces share buyback, the share price will rise.

The fact that a company engages in share buyback means that it has the money to buy its own share. The available shares to investors decrease as a result of the buyback.

6. Dividends

A company that does well will give dividends.

The share price of the company will normally rise in anticipation of the dividend announcement.

When it announces a higher than expected dividend, the share price will increase further. Once the ex-dividend date approaches, the share price falls.

Having look at the different factors affecting share price, there is no guarantee that the share price will follow a certain trend.

You have to remember that all sort of people participate in stock market investment. Some are speculators. They buy based on tips and feelings.

Some are wise investors. They buy for the sake of long term investment. They have done their homework diligently for stock market investment.

There are others who try to manipulate prices for certain purpose, such as the fund managers. They need to bring the share prices up to a certain level on the last trading day of the month, so that the overall portfolio looks good.

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