(CNBNewsnet)(December 1, 2016)--That old adage, “buy low, sell high” unequivocally has its origins in the stock market. In fact, the main reason people are eager to invest heavily in the market fairly early on in their lives is so that they can look forward to owning highly valued and varied portfolios. Seasoned market veterans know that there is more to buying shares than just investing money and hoping for the best. Instead, knowing what causes share prices to rise and fall will give you the best chances of making safe investments.
World News and Company Reportings
Company share prices traditionally hold fairly steady, reflecting major changes only when outside catalysts prevail. For instance, share prices for a company selling oranges may experience a market boost when it is reported that a new type of orange that yields an increased amount of juice is being developed. Political climates and world news can also impact share prices. Earnings reports and other company reportings can cause share prices to decrease or increase, depending on how the news is received. At its core, share prices go up as people clamour to buy, and go down as shareholders attempt to sell them off all at once.
Valuations and Ratings
Share prices may indicate how financially healthy a particular corporation may be, but analysts offer ratings and valuations to help measure how a company can be expected to perform in the coming months. What this means is that a company may have shares that are listed at the lower end of the spectrum on the physical market, and then experience a major price jump as soon as a reputable analyst releases a better valuation. Financial experts frequently speculate about the market, gleaning at least some of the information that they use to perform valuations from press releases, product releases, quarterly earnings reports and even news of company expansions.
Mergers and Acquisitions
The price of a share may also rise when a company is bought, sold, split off or merged with another entity. Sometimes companies plan mergers and acquisitions to help combat falling share prices, while others just go along with business as usual, naturally falling into residual benefits such as market price jumps and higher valuations. Generally, if a share price rises after a company has been bought or sold, it is expected to stay level. When Playtech took over Sun Bingo in a five-year deal, for example, share prices hit an all term high. Mergers and acquisitions can also temporarily inflate the value of a particular company’s shares, especially if said company has had financial difficulties in recent years. This is why it is prudent to understand how and why share prices rise, and whether you should make a purchase when an upward trend begins to emerge.
Overall Changes in the Market
At times, the share price of a company’s direct competitors can impact share value across the board. If a number of major corporations experience higher share prices, the entire market can increase as well. Most notably, share values at certain times of the year, such as the holiday season, are known to go up steadily until the beginning of the next quarterly earnings calls. On the other hand, a depressed market can also cause an otherwise healthy company to experience lower share values.
Share values can rise and fall unexpectedly, but most times, they end up levelling out. If you understand why a particular share value is going up, you can learn to recognise when its value will start to fall, allowing you to make stealthy investments that will pay off big. Find a niche within the market to study closely, and buy shares that are both stable and predictable.
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