How Does A Stock Price Change?

The price of a stock can change dramatically in a short period.

There are many factors that can cause a change in the price of stock. All of these factors are totally out of control of the investor unless they have enough stock to have the right to voice an opinion. Normally a board makes the decisions that can have an impact on the price of stock. Here are a few factors to consider when it comes to changing stock prices.

Demand

If the service or good that a company is providing is in high demand, then the stock price will go up by this. The actual amount the stock can go up is affected by a lot of factors. The popularity of a good or service on a worldwide scale can come into play. Your stock may go up due to a rise in demand in a country such as China or example even if sales stay steady in the United States.

Sudden demand can cause a big spike, but this can plummet just as quickly depending on if the demand is long term or short term. Some people become wealthy on short-term gains because they sell at the appropriate time. A financial planner is often utilized to help investors determine when it is a good time to sell or not.

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Political Climate

If a country is considered unstable politically, this can result in lower stock prices for firms based out of these countries. Investing in some geographic locations can pose a lot of risk on the part of the investor who has no control or influence on the political climate where they are invested. If you invested in Dole Bananas for example and there was a coup in the government, then your stock may drop some in price.

Value Of Currency

The type of currency you invest in is extremely important to your long-term financial future if you choose to invest. If you invest in a particular currency and the overall trade value of that currency drops, then you could lose money, especially if you convert the funds over to the currency of your country. If the US dollar drops in value compared to the Yen or Euro, then the value of the stock could easily be affected.

Generally speaking, more risky investments have the potential for the highest returns and the highest losses. The level of investment risk you are comfortable with is completely up to you. Many financial advisers say that higher risk investments are most suitable for those that are younger and have time to make up any losses or those that have money to play with and would not be majorly affected by a loss. The older the individual, the more conservative the stock portfolio in the case of most people.

A cheaper stock with a high level of risk can result in big returns if the company takes off and becomes even moderately successful. Those that invested in the internet boom experienced a period of great wealth and those that sold out before the bust maintained this. On the other hand, those that stayed invested in some technologies and internet start-ups for too long, experienced high levels of loss.

Competition

Those that have a popular product or service initially can fall to the pressure of competition. Unless you have an idea that is completely patented and trademarked then, you are going to face some competition from others. The more competition a company has, the smaller their market share and in turn the lower the price of the stock.

Branding

If a brand is popular, then the price of the stock can go up. If the popularity decreases, the price can go lower. Apple is a perfect example of a stock that is largely based on branding. Although there are many electronics that are comparable, plenty of people are loyal to the Apple name. Customer loyalty plays a large role in how well a stock performs over time.

The quality or usefulness of a product can become somewhat insignificant during good economic times so long as many people think the product offers them some satisfaction. This is what occurs during trends. Remember how popular things like Beanie Babies were at one time? When compared to the value and popularity now it is easy to see that those that sold out their stock at the right time profited. The demand is quite low now and even those deemed “rare” at one time are of little value now.

Media And Endorsements

Sometimes a scandal or other bad press can cause a stock to lose value rapidly. If the CEO of a company does something dishonest in either their personal or work life, this can create a bad impression to investors and others. On the same note, a positive article on a company in a nationally recognized magazine or newspaper can increase the value of stock.

Endorsements by influential persons such as celebrities also play a role in stock prices. Just look at the popularity of Michael Jordan’s shoes produced by Nike. Due to his prestige, the shoes led some to take it to the extreme to get a pair. Stores were forced to backorder the shoes and prices were high for quite some time.

Marketing is a major player in stock prices. If customers are to know about a product or service, then the marketing has to reach them. A good marketing director will create a strategy that elevates stock prices and reduces spending on advertising in sectors that simply don’t pan out.

Board Members

Many companies have boards that vote to make the major decisions within a company. Having financially savvy and smart board members can lead to a stronger company and a better chance that stock prices will rise. Dishonesty or infighting in a firm can result in lower stock prices and less confidence in the firm as a whole. When consumer and investor confidence fails, this can lead to a lot of stock getting sold at once and the price dropping.

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