| For anyone interested in buying stocks, the | | | | determined by the number of outstanding shares |
| fluctuation the market caused by rising and falling | | | | multiplied by the dollar value of each share. This value |
| stock prices can seem confusing and incredibly | | | | reflects the company's perceived worth in the |
| daunting. For any buyer to become a rational | | | | market both in terms of current value and expected |
| investor, however, a proper understanding of the | | | | growth. When buying stocks, one should always |
| reasons why stock prices fluctuate is essential. The | | | | examine every choice of company in light of the |
| simple law of supply and demand is demonstrated in | | | | market's expectations. |
| the changes in stock values on a daily basis, but | | | | This perceived value can change over time - and |
| there are market forces at work that help to explain | | | | often with little warning. For those buying stocks, the |
| how supply and demand work in this particular | | | | news that a company's earnings, or profit, are lower |
| instance. | | | | than expected for a given quarter can send stock |
| Everybody understands supply and demand - the | | | | owners scrambling to sell their shares, especially if |
| price of any good or service is invariably linked at | | | | analysts report that the earnings are part of a larger |
| some level with the amount of that good available, | | | | trend for that company. If, on the other hand, |
| and the number of people who want to purchase it. | | | | earnings are higher than expected, prices rise as |
| However, understanding the reasons why stocks gain | | | | more investors try to jump onto the company |
| or lose the interest of those buying stocks is a little | | | | bandwagon. |
| more complex. In truth, much of the buying and | | | | Even the best analysis can sometimes prove |
| selling of stock shares is directly related to the news | | | | unfruitful when buying stocks - and therein lies much |
| of the day that is being reported about those | | | | of the risk for investors. The best answer is that the |
| companies. | | | | law of supply and demand does rule stock prices, but |
| You have probably heard it said that a stock price | | | | demand is governed by factors both rational and |
| represents the value that investors place on any | | | | irrational. Reports on stock earnings rightfully sway |
| given company. The arithmetic of market | | | | investors, but so do fears of terrorist attacks, |
| capitalization states that a company's value is | | | | imagined energy shortages, and political meanderings. |