| How are Stock Prices Set Each Day? | | | | tight and not be frightened off a good |
| How much does a share of stock cost? | | | | price. |
| That’s like asking how long is a piece | | | | As you develop you investing skills, you |
| of string. The answer is ‘it | | | | will learn strategies and techniques to |
| depends.’ | | | | help you establish a fair price for |
| Once a stock moves out of the IPO stage | | | | stocks and either get that price or find |
| and into the open market, there are a | | | | another stock to buy that meets you |
| number of factors that go into setting | | | | investing criteria. |
| the price. | | | | Buy low and sell high is the ultimate |
| Opening Price | | | | guide to successful stock investing. It |
| For example, Amalgamated Kumquats closes | | | | is also the reverse of what many |
| on Tuesday at 251; what will it open at | | | | investors do. |
| on Wednesday morning? The answer is: who | | | | It’s not that investors start out to |
| knows. Most likely, it will open | | | | do that, but too often, they use price, |
| somewhere around 251, but any number of | | | | and in particular price movement, as |
| things might cause it to open higher or | | | | their only signal to buy or sell. |
| lower. Before the market opens on | | | | Stocks that have gone up recently, |
| Wednesday: | | | | especially those with a lot of press, |
| Civil war in Elbonia, the prime producer | | | | often attract even more buyers. This |
| of Kumquats | | | | obviously drives the price up even |
| President of Amalgamated Kumquats | | | | higher. |
| arrested for looting the company | | | | People get excited about what they read |
| FDA says Kumquats cure baldness | | | | and see and want a part of the action. |
| Huge oil reserves discovered on | | | | They jump into a stock that is already |
| Amalgamated property | | | | trading at a premium – they buy high. |
| All of these circumstances and many | | | | Traders |
| others could influence the price up or | | | | Experienced traders can make money |
| down. | | | | jumping in and out of a stock that’s |
| In the end, it remains a question of | | | | caught the public’s attention, but |
| what a buyer is willing to pay and a | | | | it’s not a game for the inexperienced |
| seller is willing to take. | | | | and it’s not investing. |
| The swirl of market, political, and | | | | There’s risk involved and tax |
| industry news influences whether there | | | | consequences along with other issues |
| are more buyers or sellers for a | | | | that mean most investors should leave |
| particular stock in the market at any | | | | this activity to short-term traders. |
| one time. | | | | For most investors, trying to grab a |
| Clean Slate | | | | piece of the latest flashy stock, |
| Every day the market opens, it’s a | | | | usually means paying too much (buying |
| clean slate. Investors must meet no set | | | | high). |
| prices. Stocks that the day before were | | | | Bad Decision |
| flying high may not get off the ground | | | | The other side of the market is when a |
| today. The ugly duckling turns into a | | | | stock has fallen; most investors may |
| cash cow (how’s that for mixing | | | | want to sell along with the rest of the |
| metaphors). | | | | market. If you go by price alone, this |
| The point is a share of stock is worth | | | | can be a bad decision (sell low). |
| what someone else is willing to pay for | | | | There are many reasons a stock’s price |
| it. That is the heart of investing. A | | | | drops and some of them have nothing to |
| stock may be a good buy at $35 per share | | | | do with the soundness of the investment. |
| and a terrible buy at $50 per share to | | | | That’s why if you only follow price |
| one investor, however another investor | | | | you may miss an opportunity. |
| may not think twice about paying $50 per | | | | After a stock’s price has fallen can |
| share. Which is the right price? Often | | | | be a great time to buy (buy low) if you |
| only time will tell. Many years ago, | | | | have done your research on the company. |
| some investors thought $10 per share was | | | | Conclusion |
| too much for Microsoft and refused to | | | | If all you know about a stock is the |
| buy it. Too bad for them. | | | | price, you may (and likely will) make |
| Fair Price | | | | investing mistakes. Remember, if a stock |
| Successful investors decide what a fair | | | | has had a good run up it may be time to |
| price for a particular stock is and | | | | sell, not buy (sell high). Similarly, if |
| that’s where they buy. They don’t | | | | a stock has dropped like a rock, it may |
| let market hysteria goad them into | | | | be a good time to buy rather than sell |
| overpaying. Likewise, if nothing has | | | | (buy low). You won’t know what to do |
| fundamentally changed with the company, | | | | unless you understand a lot more about |
| but the stock is dropping along with the | | | | the company than its stock price. |
| market, successful investors will sit | | | | |