Wednesday, May 5, 2021

What causes a stock to gain value?

 What causes a stock to gain value?

Written by: Zach B. 


Growing up as a kid you’re always told, “Invest while you’re young,” and “save while you’re young.” But they never tell you the details. They never tell you what to invest in, how stocks gain and lose value, the basics of investing. Well I’m gonna zero in on one thing about investing and that is how a stock gains its value. Lot’s of factors can manipulate a stock's value on the market but in recent years supply and demand, inflation, and company news seem to have the biggest effects. 

How Supply & Demand Affects a Stock Price

When the interest in a stock is high and a lot of people are buying that specific stock the prices go up because demand is breaking supply levels. For example bitcoin, thousands and thousands of people were mining and buying bitcoin in the mid 2010’s and now look where it’s at.  As of 9:51 pm on May 4th, Bitcoin is sitting at $55,005.86 which is about a $30,000 increase from 2016. Demand kept raising so the price rapidly rose alongside the demand. When a stock holds a low demand the price crashes because people practically have deadstock sitting around in their portfolios. The stock is continuously losing value as people sell it at cheap prices instead of having it sit around. 

How Inflation Affects a Stock Price

Inflation negatively affects growth stocks and positively affects value stocks. If you’re wondering what both of those are let me quickly explain. Growth stocks are stocks you invest in while they are cheap and sit on them eventually till they become what you expected the stock to become. Value stocks on the other hand are bought and sold quickly to make as much profit as you can. Basically flipping the stock to put it in simplest terms. Inflation negatively affects growth stocks because interest rates rise to defend the increasing inflation which causes that negative effect. For value stocks the income is there because of the raise in stock prices. They most likely bought for cheaper than what they could potentially sell it off for.

Why Company News is THE biggest Factor on Stock Price

Company news to me is what creates the demand for the stock, product, service, whatever you wanna call it. If your company is sitting in the ducts with absolutely no coverage, no specials, no collaborations, nothing that will create news the demand of the stock will never be there. Stock brokers and investors aren’t going to invest in a stock that lacks attention, growth and effort to create demand. I don’t wanna go back to crypto currency but I have to. Dogecoin is a prime example of how company news is the biggest effect. Only reason there are eyes and demand for the crypto currency is because of Elon Musk fully backing the stock and taking every opportunity to advertise the stock. Dogecoin is projected to reach new highs after Elon Musk’s appearance on Saturday Night. That’s just one example of company news affecting a company's stock price and there’s plenty more feel free to look them up.



Works Cited

Sigalos, MacKenzie. “Elon Musk's Upcoming SNL Appearance Is Fueling Dogecoin's Rise, Says Analyst.” CNBC, CNBC, 4 May 2021, www.cnbc.com/2021/05/04/dogecoins-price-is-rising-ahead-of-elon-musks-snl-appearance-.html.

Wayman, Rick. “Short and Distort: Bear Market Stock Manipulation.” Investopedia, Investopedia, 15 Jan. 2021, www.investopedia.com/articles/analyst/030102.asp#:~:text=Short%20and%20distort%20(S%26D)%20refers,price%20of%20the%20targeted%20stock.

“What Causes Stock Prices to Change?” What Causes Stock Prices to Change? | Desjardins Online Brokerage, Desjardins Online Brokerage, www.disnat.com/en/learning/trading-basics/stock-basics/what-causes-stock-prices-to-change#:~:text=Stock%20prices%20change%20everyday%20by%20market%20forces.&text=If%20more%20people%20want%20to,supply%20and%20demand%20is%20easy.

Zucchi, Kristina. “Inflation's Impact on Stock Returns.” Investopedia, Investopedia, 19 Mar. 2021, www.investopedia.com/articles/investing/052913/inflations-impact-stock-returns.asp. 


24 comments:

  1. Ashley Anderson - I am always interested in learning more about stocks in terms of finance, so I'm glad you wrote a blog post about it! I found your post very insightful, but the graph you provided also added a nice touch to it. I never knew how many factors could cause a stock to change... especially world and company news! I think it is so important to learn about stocks when we are younger, because most people who invest their money into stocks do not know what they are doing. I also found online that natural disasters tend to cause the stock market to change, which is crazy since natural disasters happen every day! You did a great job not only explaining what things can affect the stock market, but HOW those specific things affect it.

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  2. This was a great piece, very helpful and growing my knowledge about finances and other things we have covered over this past year. This graph you added really helped illustrate even more. I think it is great we are learning about this now then later because the earlier you start the better off you most likely are going to be financially.

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  3. I agree with that first statement in particular. If I knew to start investing and saving even earlier than now, I would have. But now I’m in this class to learn how to. If I had invested in some of these stocks early I would be greatly wealthy. For example, my Grandparents remember when Apple first hit the market, and they thought, “Yeah… Apple will never take off.” They could have been millionaires if they had invested back then. Also with Dogecoin, just absolutely skyrocketing as it is, I could have made a lot of money. However, this brings me to another point. By the time you know about the stocks that have gone up, the best time to invest in them has already passed. There are those people who gamble their life savings into some obscure stock and make big money… but it isn’t a good idea to do so. Diversification in the stock market is very important, and is safer than putting all your money into one stock. Overall, nice blog with good points. :)

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  4. You hit this right on the head, I feel that people are constantly saying invest while you are young but then fail to explain to us what exactly investing is, and how it works. The stock market like you touched on is a great way to invest your money but it takes a bit of learning and understanding just how it works. For instance, I thought that I had a pretty good understanding of how the stock market works and how to invest, but I didn’t know much about inflation which you talked about in your piece which was helpful. Do you think schools should start teaching kids at a younger age how to invest?

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  5. Zach, I really liked how you went into detail about all the specifications of a stock. It was really easy to understand why and how a stock decreases or increases. The three main points you had were very clear and precise. I really agree with your last point about attention. If companies are trying out new things and growing, so does the value of their stock.

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  6. Great blog post Zach!! I love how you talked about the side of the stock market that very few of us would know, as you talked about how company news is the biggest factor on stock prices, but it’s something that’s not talked about enough or understood by many people. For example, stocks in sports companies like New Balance were greatly affected after they signed Kawhi Leonard to their brand, as he’s a big public figure who can bring them lots of publicity. I also loved that you talked about inflation and how that affects stock prices, as I didn’t even think about that before and realize that was a possibility, although now I completely see how it could cause fluctuations in different stocks.

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  7. Something I have always been interested in investing in the stock market but I’ve always wondered how I can predict the stock market is going to gain value. I agree with you that for a company to persuade people to invest in their company they must have company news. The thing I question is that if a company has massive company news, does this mean I should invest in them for that reason alone?

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  8. Before reading your post, I didn't really have any idea of what makes stocks valuable. I'm really glad I read your post because I've always wondered how this is determined. One thing I sort of already knew about was company news, but I didn't realize it was one of the biggest factors. I also found it interesting that inflation negatively affects growth stocks and positively affects value stocks. Your article was very interesting and I definitely think I learned something from it!

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  9. I really like that covered the large variety of ways in which a stock gains value instead of just covering the most major ones. A stock's value is tied to a very large variety of potential events, and it's important to recognize how a company's action can impact its stock price to be as successful stock broker.

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  10. This is interesting! I had no idea that stock prices were so complicated! It is especially interesting how the stock price doesn't always represent the success of a company, because it is also dependent on inflation and demand.

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  11. I think it's interesting the different ways things like inflation can effect stock prices by causing them to be over valued or negatively impact growth stocks. I also thinks its cool how you described different types of stocks and how these variables function differently for day traders vs longer term investors and how these things can have adverse effects depending on why the stock was purchased.

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  12. I loved your blog, Zach! This is something that has always confused me (honestly most things regarding stocks confuse me haha) but you broke it down nicely. It now makes sense why there are whole jobs devoted to designing company news and press releases because one bad move can sink a company forever. If a company has consistently positive mentions in the news, is that a good reason to invest in them? Does that guarantee that their stocks will stay valuable? Great job!

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  13. Stocks have always been a super overwhelming concept to me. I never really understood how they worked, so this blog post is super helpful and appreciated. Now I have a better understanding on how stocks gain values and why you can see even well known company names go down the drain.

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  14. Before reading this all i knew was that when stocks change value you want to buy and sell but i never knew how that value actually changed, so its interesting reading about the inner workings of stocks and how they actually change.

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  15. This was a very well done piece! I specifically loved your first statement and from there, I love how you broke down what you were trying to say. This gave the reader an easy way to understand fully what you were trying to get across in your piece. I think the evaluations of stocks and how they can constantly be changed is fascinating and my fascination only grew through this piece. Great job.

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  16. I found this information very helpful to learn more about the basics of investing. You make a good point saying that everyone tells you to invest young, but never tells you how. In addition, the comparisons to cryptocurrency were very helpful to better understand the topic. I agree that company news is a big factor that impacts stock price. One thing I don’t understand is how exactly stock price is calculated and what is involved in the calculations that causes company news to be such a big factor of stock price.

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  17. i like what you said about stocks. i learned somthing new today

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  18. Zach, this was great! I loved how you included the visual at the top, and then went more in depth as you kept writing. I found myself revisiting that visual a lot. Your ideas were unique and original, and I really learned a lot about stocks. This was awesome! How do you see that list of factors changing in the future? Will the list grow or shrink?

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  19. I found this piece very interesting and helpful as I have experience the same things when I was younger and even now everybody tell you to invest and save but they don't tell you how, why or what which doesn't really help but with this piece I can use it to help me in the future and even now.

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  20. You had a lot of good information in this. very well written. Being told for a long time that we need to invest and save when young is annoying when not knowing why.

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  21. This is an awesome post. Something that I think is totally crazy is how big of an effect the news and media has become. Stock prices can rise or fall extremely quickly because of the media and in some cases mass following of media sources can dictate these market prices. There is also so much that goes into a stock price at any one time. It's almost impossible to truly dictate exactly what the market is going to do and there are so many influences that can make these things change.

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  22. I think this is such an interesting topic, especially because we as high schoolers don't typically know much about stocks besides that you can buy and sell them. I think it is so cool and crazy how the media and news can alter our prices so much. This really shows how unpredictable stocks can be.

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  23. As someone who has very recently dove into the world of stocks and cryptocurrency this piece was extremely helpful and educated me tremendously. I think everyone should read about this topic so they truly understand what they are investing in.

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  24. Zach, I really liked how you went into detail about all the specifications of a stock. It was really easy to understand why and how a stock decreases or increases. The three main points you had were very clear and precise. I really agree with your last point about attention. If companies are trying out new things and growing, so does the value of their stock. Great job!~!!!

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