What makes a stock price rise in value?

[springhill]

Re: What makes stock price rise in value?

My way of thinking is
If I walk into a supermarket and see a jar of Vegemite on the shelf for $2.50
I'm not going to offer the checkout chick $2.51 I'm going to buy if for $2.50 no matter what the price is tomorrow

And If I was going to but a Carton of Vegemite Jars I'm going to expect to pay a lot less for them per Jar??

Behind all failed investments you will find expectation.

nev25, your quote above is fundamentally flawed.

If you are to purchase jars of Vegemite in bulk you may receive a discount.

If you are to buy shares of a particular stock in bulk, you are likely to push the price up. Not down.

You have now contributed to a stock being potentially over valued. Over valuing a stock may entice sellers who see an imbalance, now your stock is worth less than what you paid.

In the case of Vegemite you may have bought a bargain in comparison to retail price, in the case of stocks you may have just bought a dud.

Vegemite has a recipe that makes it a consistent, reliable product, stocks do not.

Retail and the markets are not comparable.

Retail has structure, the market is a funky free-for-all that changes on a whim.

 

[pixel]

Re: What makes stock price rise in value?

On that thought
I'm going to no assume that If I was going to buy the Vegemite to on sell to someone else and I am thinking the price will go up tomorrow I will offer a bit more to make sure they sell them to me

Right??????

Right!
You've got it. (Provided of course, as the crowman says, your "thinking" matches the market's whim.)

At the time of High Inflation (Germany, 1923) when prices would rise tenfold week-on-week, one farmer took two pigs to a butcher late on Friday, offering them at next week's prices (minus a little discount). Since the butcher knew he couldn't have the meat and sausages ready for sale before Monday anyway, be took the deal and paid cash. The farmer rushed around the corner into the bank branch with minutes to spare before closing time, and paid off his mortgage at the current week's rate.

Had the farmer's timing been wrong, had be missed the bank's closing time, he would of course have been worse off at least by the discount, because he could've kept the pigs a couple of days longer and sold them for twice or more.

 

[skc]

This is an exact and concise answer to the OPs question, imo.

Here's my way of saying it: Net expectation of future price drives behaviour of involved parties, and the resultant behaviour makes the price move. One can come to his own expectation in a number of different ways, (FA, TA, statistical analysis, hot tips, etc) but no one has ever clicked "BUY" unless he first has an expectation of future price. The expectation may turn out to be wrong, but that's irrelevant. Net expectation of future price = price movement.

Not bad. A few adjustments ...

Prices move due to the marginal buyer/sell's perception of NPV of future cash flow

"Net expectation" don't matter... I may have a expectation of BHP being worth $50, but I already hold 1000 shares and fully committed. My expectation does not influence the share price since I am not trading it. The share price is always determined by the marginal buyer / seller. That is, those who are most willing to buy or sell.

And buying and selling are based on NPV of future cash flow. The price received for the share is simply one part of the cash flow. The others are obviously dividends, interests, capital return etc. The term "future" may be as long or as short as you like. The seller expecting his future cash flow to be 2c less in 5 minutes will sell at $1.00 rather than wait for 98c.

I'm creating a few circular arguments here, and I don't necessarily have the answer but if I start with some statements:

1. most traders lose
2. net expectation drives behaviour and behaviour drives price.

It's great to see you applying logic. You have 2 premise but 1) is untested. I think you will find that those studies about 90% traders losing are done for future products. I believe, depending on market conditions, there'd be times (and possibly extended periods) when a large proportion of retail traders are profitable (think tech boom etc).

if 2) is correct, then either :

--losing traders' personal expectations are not in tune with the net expectation, or
--losing traders' personal expectation is out of synch with the big players money. or
--big players (insto and private) are the only real movers of markets and net expectation is unimportant

But if big players are the only real movers then they would always win (which they don't). But that might just be because they are playing against other big players in the same stock.

I think I need to attach a copper heat sink to my head.

Your first deduction "losing traders' personal expectations are not in tune with the net expectation" is already sufficient to explain what you observe in the market. The second and third duductions are essentially the same, since you must take the big instos into account of net expectations (and of course there are more than one of them).

I think it just comes down to this: sell when the average guy is buying, if you think you can tell when that is. And buy when the average guy is selling. Backtests can show you that.

This would be true only if your premise 1) is correct. But this is only relevant if you think that it is easier to detect the buying and selling intentions of the "average guy" vs directly attempt to analyse the "net expectation" of all the monies involved.

 

[skc]

Vegemite has a recipe that makes it a consistent, reliable product, stocks do not.

Retail and the markets are not comparable.

Yup. You see plenty of books saying "you'd buy more in a shop when the prices are down, so you should do the same with shares". That is the least helpful analogy ever.

I believe a useful analogy is hookers. If a hooker drops her price and gives you a discounts for her service, the first thing you should think is if she's got some new disease you didn't know about.

 

[burglar]

I told a friend that if he ate vegemite, it would help him get citizenship!
So keen was he to become a citizen, he bought the biggest jar!!
Soon after, he gave me the jar with orders to give it home to my children.
I opened the lid to find the most delicate scraping.

:

 

[ceasar73]

I used to ask myself this question in the begining..EPS..INVY (GREED) > FEAR ..?? etc etc.
I don't care anymore b/c to me, 'why' matters not....the market is always right
When my indicators say uptrend, I buy .When they say downtrend, I sell.
Price to me only matters when I sell.
I have started doing well with this simple method.
regards,
ceasar73.

 

[pixel]

I told a friend that if he ate vegemite, it would help him get citizenship!
So keen was he to become a citizen, he bought the biggest jar!!
Soon after, he gave me the jar with orders to give it home to my children.
I opened the lid to find the most delicate scraping.

:

We took a couple of jars Overseas to introduce family and friends to our "edible axle grease". That's what they called it after just one scraping. Only one couple enjoyed it - they were returnees from Hermannsburg, retired back to the Fatherland. Made them extremely happy when we left one jar with them. The other one we had just about all to ourselves. It helped keep our homesickness at bay.

 

[Pnut]

There is also another reason for prices to rise and fall, its the stops above and or below the market.
i.e. A trader buys a stock the first thing he does is place a stop loss just below the last pivot low. The second thing he does is either put his target a million miles in dream land or tells himself hes going to hold on until he sees a definite reason to exit.
What has happened here ? The trader that has all the confidence in the world of a stock rising has put a negative on that stock when it finally hits his stop he will sell out at the lowest price seen in weeks and all his fellow traders who have their stop there help him to drive down the price of the stock.
Or the reverse could be true.
A trader believes a stock is ready to collapse. He sells the stock short and puts a buy stop just above the market. He dreams about making his fortune on this very trade and retiring to the gold coast, so decides to not place a target and just let the money flood the trading account till it overflows. The market wanders around then a quick spike gets him buying the stock at new highs.

My opinion higher prices beget higher prices and lower prices beget lower prices.
Pnut.