Sunday, July 02, 2006

Why do share prices move up and down?

Factors, many and varied, affect share prices. Below are some of these factors:-

Earnings (present and future)
Mergers and acquisition
Change of ownership and management
Interest rates
Government policies
Political unrest
Lack of co-operation between countries
Natural disasters such as severe drought, floods, and epidemic
Commodity prices
Emotion and sentiment. .

The above factors are forever changing. This causes the supply and demand of shares to change as well. When demand is greater than supply, prices rise. When supply is greater than demand, prices fall. The greater the difference, the greater is the velocity.

When people are optimistic, they become overly optimistic. When they are pessimistic, they become overly pessimistic. That’s why shares become overpriced sometimes and under priced at other times. Smart monies know this. They are able to exploit these situations.

Never get married to your stocks. When they are very much overpriced, they must be sold. You can always buy them back when they are down.

Investment in knowledge will pay the most dividends. You must invest wisely to win.

Happy investing.