What Factors Affect Stock Prices?

Profits are made when an investment is sold for a higher rate compared to what was paid for it. This is why price is a direct metric that determines profitability. Other factors like historical costs, monthly income, and portfolio diversification are all secondary next to it.

Individuals try their best to invest in companies that have share prices that are likely to increase. In this post, we will be analyzing several factors that influence share prices. Let’s take a look:

Performance of the company

A company’s overall financial health and profitability directly affect its reputation in the market. The experience of top-tier management, along with the managerial decisions and strategies they execute play a vital role in the overall success of the company. Even the authority to decide final the dividend rate lies with management.

On the flip side, if the managers are incompetent, unqualified, and lazy, the company can suffer setbacks. This reflects in the share price.

Short-term speculation

The stock market is highly speculative. It’s not too hard for someone to start rumors that make people flock toward a certain stock. Let’s say someone found out that the prices for ABC stock will go up in the next month—most investors will buy it without a second thought. When the demand for a stock goes up, the prices also increase—it’s a basic law of economics.

Speculation like this is short-term, and takes place every time there’s news in the market. The news can be both genuine and fake. To identify a scam, you need thorough practice and help from a reliable stock consultant.

Economic conditions

Just like every other form of investment, stocks also respond to macroeconomic changes. In times of recession, people start selling their stocks as a precautionary measure.

When too many people sell the same stock, the demand decreases. This causes the price to fall.

People also pull out of investments if the Central Bank raises the interest rate. A higher interest rate makes saving more profitable than investing. To keep up with such economic shocks, always diversify your portfolio across a number of different investment securities.

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