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