Can someone help me understand the stock market?
Ok, so the market has been going down the past few weeks.
1) Does this mean that people are selling off their stocks?
2) Why would selling your stocks make the market fall?
3) If I own a stock, and then someone else who owns the same stock decides to sell, why does this cause my stock to go down in value?
Sorry if these questions seem stupid but I’ve just started learning about the market.
The above people are close, but I am a financial economist and maybe I can help.
1) To sell something there has to be a buyer also, so if people are “selling off stocks,” there is another group “buying up stocks.”
2) If you want to sell more than a buyer wants to buy then you will drop the price until a buyer cannot resist the trade. So by selling you can push the price down depending on how badly you want to sell and the other person wants to buy.
3)If IBM’s share priced crashed today to one penny per share it would still have the same intrinsic value it had prior to the crash, but you couldn’t sell it for that price. If people were only willing to pay one cent per hundred shares then that is the best price you can get even if it is worth $50 per share. It is rather like the real estate market, if everyone in your neighborhood suddenly got job offers elsewhere and put up for sale signs, even though you were not selling your home your home would be worth less if you did try and sell because there are a lot of motivated sellers for a given number of buyers.
Stock prices fall if the number of shares offered for sale increases while the cash available to buy remains the same. Likewise a decrease in cash available to buy while number offered remains constant will also cause a fall. If the cash falls and the number offered increases you could get a big fall.
Like your house, your stocks are only worth less if you actually sell them and get the lower price. Stocks are worth their intrinsic value. If you paid more than their intrinsic value you will eventually have to lose money. If you paid less than their intrinsic value you should not only make the fair return, but also extra money as people realize the stock price was too low in error.
I think what is happening is that now that the dollar is worth less, substantially less, than it was six months ago, foreign holders of US assets are taking their money back by selling their US assets. The run up of the dollar under the Clinton Administration led to low prices across the board for Americans and virtuous growth factors. It is gone now. Eight years of Georgie and we are beginning to slide into a deep morass. It is avoidable, but the next President, whoever he or she is, will probably have to lose the re-election to fix the problems because it has been pandering to the public which has gotten us into this pickle. This President has over spent the nation’s resources.
Will the stock market continue to fall? No one knows. I am invested in the market, but I am invested very carefully. I would not consider most stocks because the price for them is too high, but there are wonderful inexpensive stocks out there.
Chancery Resources, Inc. (CCRY) Penny Stock Trading Chart_3/26/2013
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