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Why Share Prices Increase or Decrease?

Posted on 2019-05-22 in WEALTH NOTE RESEARCH


The stock market is highly volatile in nature where the stock price fluctuates every single minute. What drives this unprecedented level of change in the stock price is the market forces. Simply put, the change in share prices is because of the disparity between supply and demand. This means when more investors want to buy a stock, its price goes up. And if the situation is reversed in which more investors are after selling rather than buying a stock, its price falls down. Several factors contribute to the swing in the demand and supply of stocks. That's why share market investment needs detail study and loads of experience.

Long-term shares

If you're in pursuit of higher rewards, and can hold patience for a longer time, then being a long-term investor is right for you. Since long-term returns are always based on equities, opportunities for growing your money are brighter. Because these stocks have a low debt to equity ratio, they have a solid potential of generating money in the long-term. Generally, in long-term share, share price is dependent on the profit and loss of the company you hold shares of. So when the company makes a good profit, it reinvests that part of money in order to generate more profit in the next year. Because of more profits, it will even dole out more dividends to investors. This generates interest in people for that stock, and they rush to buy it that leads to increase in price. And if the company is in loss, the stock price falls since no one is willing to buy it. 

Short-term shares

If you're contemplating share market investment for a short-term, entering into the stock market at the right time is crucial to get the most out of short-term investment. If you time the market well, then instant gains are guaranteed. However, in short-term shares, the price is mostly dependent on news and expectations. If there is some positive news due to changes in the government policies, peace in the country, and good earning reports of the company, more investors will buy that stock, which will eventually increase the price since buyers will bid a high price when it is being auctioned. When there is a negative news, whether due to uncertainty, bad governance, economic or political turmoil, or riots, more investors rush towards selling their stocks, which brings an unacceptable drop in the stock price. What causes these abnormal swings in the stock market is the sentiments of investors. They believe conditions prevailing in the country will largely affect the profitability of the company in the future. That's why they tend to buy when there is positive news, and sell during negative news simultaneously. 

Cyclical nature of stock market

If you're trying stock investing, then be informed that the stock market is largely and persistently cyclical in nature. This means everything that happens in the stock market occurs in cycles. What goes around now, comes back after a brief moment. So when trading in the stock market, you may be in a bearish mood at a one moment, and in a bullish mood in another. The former state of mind will be when the stock price falls and the latter when the stock price rises. So to conclude, the increase or decrease in share prices is mostly affected by the earnings of the company and the sentiments of the investors. Of course, there are many other reasons for the fluctuation in share price, which nobody knows for sure. You can still learn to predict what will happen next by taking share market classes in Pune by enrolling at https://wealthnote.in/. 


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