Ferdie Atumal, Negosentro | Stock prices are subject to change almost every waking moment. There are quite a few factors that directly and indirectly influence the share market prices. Superficially, supply and demand are the main factors that change the prices. It is quite simple – if there were a higher number of people, who wanted to buy a stock than sell it, then the demand would be much higher than the supply. Just like any other commodity, a better demand raises the price of the stock. However, it might be difficult to understand what makes one stock so desirable for a group of investors over another. Investors have their own theories about what makes a stock likable and another one unlikable, under the same circumstances.
What determines the company stock prices?
The value of any company is its market capitalisation. The product of the stock price and the number of outstanding shares directly tell the company’s value. Any potential investor must always remember that a company’s current value might influence the stock prices, but the stock prices also depend on the growth these investors foresee for the business. Therefore, the company earnings are of paramount importance in determining the price of the stock. That is in direct correlation with inflation. For example, Australian Share Prices increase with inflation. Stock prices can decrease with deflation since it signifies a loss in pricing power for the Australian enterprises.
Which is the stock prediction theory?
In contrary to this “theory”, there were thousands of companies whose stock prices soared with the dot-com bubble. This inflation was only for a short period, and they did not make any real profit for the time being. It stimulated many researchers, finance experts and economists to develop new theories, hypotheses and equations to master the secrets of factors that influence stock prices. They include hundreds of variables, indicators and ratios. Some of them have mouthful names like the Moving Average Convergence Divergence, while others are just complicated relationships between alphanumeric variables.
When a cat beat professionals at stock picking!
Even now, nobody can underline a finite number of factors that influence the change in stock prices. While some think, it is easier to predict future stock market trends by sticking to graphs and equations. Others just rely on their luck and pick one that looks the best. Let us not forget that Orlando, a ginger house cat, managed investments better than a team of professional stockbrokers, investment professionals and finance students in the year 2012.
Nonetheless, there are a few essential things you need to know about the subject:
- Supply and demand always determine the stock price.
- The value of a company directly depends on the number of shares and the price of the stocks.
- Never determine the value of a company by comparing the stock prices only.
- Many market factors determine stock prices including inflation, the economic strength of a market and peers, substitutes, demographics, liquidity and trends.
Unfortunately, no perfect theory can determine the stock prices accurately or predict the future of market share.