The price level of a share can be compared to a soldier under ambush. He is being attacked by enemies from all directions and yet he has to make efforts to hold on to the position and make further advances! He can not tackle one enemy at a time. Similarly more than one factors influence the price of any share. They are business related; political issues, economic upheavals and human psychology play an important role determining the level of prices.
The common investor does not have the time and patience to analyze each and every part of his investments that one holds. You are generally guided by what you read in the newspapers and discussion amongst friends. Panic sales are very common. You sell a stock because others are selling it; you buy for others are buying it.
The important business factor is company's earnings. When the earnings increase, the same will have beneficial effects on the share price. The future projections by the company and the estimated profits will also influence the prices. But in this age of industrial and internet revolution what happens in a part of the globe, may adversely affect a particular product in many countries of the world. The other prominent factors that will affect the market are inflation, political upheavals, terrorist attacks and oil prices.
Analyzing and estimating the share prize, is the domain of the human mind. Therefore, it varies from person to person as per one's perception. One may expect the downslide due to impending war as for the shares of construction companies. The other analyst may think that post-war reconstruction activities may push up the prices.
Every action has the reaction and what type of reaction it creates, is again a mater of interpretation by the analysts. Lay offs for example. Because the expenses will be drastically reduced, the same will have the quick effect on prices. If the sales are not up to the expectations, layoff is the quickest remedy and that will boost the prices.
Another important factor is the analyst's recommendations. You see a mushroom growth of specialized periodicals and you get to read articles from the experts. On the basis of the study, they recommend certain shares and caution the investors about the slides. This creates enthusiasm or panic amongst the buyers and you see lots of swing in the prices following the publication of such articles.
With all the internet facilities, strategies, analyzes and expert forecasts, none has ever succeeded in making correct forecasts as for movement of prices. When the prices will skyrocket or when they will hit the rock bottom is anybody's guess. This is an area the sudden developments in which baffle the Finance Ministers and the Central Bank Governors. In most of the cases they have apparent remedies but no real solution. The market, sooner or later, stabilizes of its own, and nobody knows why it has behaved the way it has behaved. You have to bear with such rough rides and protect yourself. Plan your investments by taking into consideration all the factors affecting the stock market.
Understand all such factors and curb your appetite to act beyond your means. Adventurism is a wrong move, but you can take calculated, manageable risks. Stocks are articles of business, and one should not get emotionally attached to any. Buy when you have strong reasons to buy; sell when you have no reasons to hold.
Upswings and downswings in the share market occur daily and no one can fathom the precise reasons. Why the share prices fluctuate, beating the estimates of the brokers or investors? The price level is affected by the complex environment of the total economic system and all the economic activities are interlinked. Some of the important reasons that adversely affect the market are, extreme climatic conditions like heavy rain and floods or the total absence of it leading to crop failure, the varying interest rates, the political developments, war-like conditions or actual war, policy changes made by the government in the regulatory mechanism, and conditions that disrupt the confidence of the investing community. Even when the economic conditions are favorable, the share prices may crumble due to many extraneous factors.
The internet and industrial revolution have deeply impacted the market and the technological advancement will continue to affect the small and big companies. The concept that ?world is one family? has become the reality in the commercial world. So, global and domestic factors will have to be taken into account while trading in shares. Not long ago, if an entrepreneur thought of establishing an industrial unit, his survey would mostly confine to similar units within the country and their competing capacities. The situation is no more the same. For example, the giftware industry in India is facing stiff competition from China, and several units have pulled the shutters down or are on the verge of closure. The shareholders who invested in reputed gift items manufacturing companies have suffered losses.
The most unexpected things happen in the share market and the random, unforeseen forces do their job pretty well to demolish the conclusions of the analysts and researchers. The market shifts dynamically with the impact of the laws of supply and demand, and the cyclical nature of the share market. Even a shrewd investor can only make a general guess about the adverse market factors affecting shares, but the precise predictions are impossibility.
Let us enumerate some of the all-time important factors:
Interest rates: Play the major role in determining the share market trends. The interest rates are low in bull market conditions and in bear market they are high. Low interest rates mean low demand for capital, liquidity builds up and the share prices are pushed down.
Company profits: Companies doing well in business attract more investors. When the profits are sliding, more and more investors will sell their holdings and the prices will decline.
Political development: Adverse political situations and the steps taken by the regulatory mechanism will have the effect on the market as a whole. This will mostly impact all the shares irrespective of the segment of the industry.
Demand and supply: This is the eternal law of the commercial world that affects the share market as well. The mood and trends in the market will impact the price of the share. Trends are difficult to predict and it is preferable if the investor goes by the guidance of his broker.
Print and Electronic media: They say a lie repeated from thousand platforms becomes the truth. The role of the press and the views expressed by it on the share market conditions, influence the decisions of the investors. The seasoned investors know the importance of the performance of the company, but the press releases have the capacity to sway the minds of the common investor. A particular share may become volatile, with publications supporting it. An investor has to take care whether they are planted stories or genuine positive developments happening with the company.
Several other factors like Market Cap, Earning Per Share, Price/Earning Ratio will have the positive or negative impact on the shares depending upon the level at which they operate. An investor needs to keep himself up-to-date with the goings on in a company with the help of quarterly, annual reports and the newsletters published by the reputed brokers. Proper knowledge about the market conditions is a great asset for an investor to take decisions.
Finally, there are stock specific factors and general market conditions that will impact the price of a share. Professional stock trading companies offer consultancy that will help an investor to take profitable decisions. Do not go by cheap advertisements that promise you the moon. Such agencies get payment of their fees/brokerage and later land you in trouble.
Both Micheal James & Vijay are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.