What causes price movement? Why don't stocks just sell for what they
are worth according to the "fundamentals", you know, those earnings that we
keep hearing about? |
In truth, stocks have no more "real" value than do
any other items. The price of anything is determined soley by
what a buyer and a seller can agree upon. There is, however, a critical
difference when considering stock market transactions. In the case of
the sale of a loaf of bread or an automobile this agreement concerns the
present value of the bread or the Chevy while in the case of a stock
sale the traders are attempting to predict the future price of the item. The one
entering the trade hopes to be able to exit at a better price in the future.
Prices move up and down due to differences in opinion about just what these
future prices might be.