Re: A complete newbie beginners question
What makes a share price rise?
or better ask "What causes the price of anything to change over time?"
Answer: Different opinions and interests of buyers and sellers.
Look at a chart of a stock in suspension: Nothing moves because it isn't traded.
But even if there are some trades, buyers and sellers may be in agreement by and large, trading the share essentially at the same price - give or take a few exceptions:
Which gets us to the obvious point where there are large numbers of buyers and sellers, each of whom has a slightly different view and reason to start, increase, decrease, or relinquish a holding in a particular company. For an example, any stock's chart will do, as long as it's being traded at a reasonable volume. I just happen to look at BDR:
Take the dip preceding the two green candles on September 27 and 28:
One holder might have decided it's time to pull some cash out; any reason will do:
- upcoming school fees
- upcoming anniversary (or worse: forgot the one last weekend and needs a "late delivery" excuse)
- read about another, more promising, investment opportunity
This seller offers some at 96c; another one, in a similar situation, undercuts by offering 95c.
Two days later, another would-be investor comes across BDR. Let's say he has just sold another share and looks for an opportunity to buy something new. He sees BDR has been sold down to 87c, so he buys up to 88 and then some more at 88 and 89 because the sellers - sensing buying interest returning - are no longer willing to accept any less. And before you know it, you have a Price Dynamic that has nothing to do with the "fair" value of the company and everything to do with differing interests and mindsets of buyers and sellers. The company itself is still the same; its financial position hasn't changed; its future outlook hasn't changed. Only Market Perception. Oh - and news of an oil discovery, or a dry hole, or a new contract being rewarded will change market perception quite suddenly.
Who is right? Who is wrong? Answer: Nobody is either. The price simply is what it is:
At any moment n time, the share is worth exactly what the last buyer was willing to pay, the last seller willing to accept for it. And since "La donna e mobile", Ms Marquette is allowed to change her mind at any minute.
(Of course, there is yet a different scenario: If I hold a large position and want more, but pay as little as possible for the next lump of BDR, I might sell a few, giving the impression the price is going to drop. 5 or 10c lower, when I find sellers won't come any lower, I buy back all the ones I sold earlier, and then some. If done on a sufficiently large scale, that behaviour is sometimes called "Manipulation". Of course, that's unethical, illegal even, and therefore never really happening. As certain as the Earth is flat and the playing field always level.
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