Tuesday, October 24th 2017

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Why stocks go up and down?

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23rd Nov 2009 by Michael Haltman

Stock prices for companies are typically determined by the expectations the market has for future earnings. For stocks that currently have earnings, the price can be determined by placing some multiple on those earnings. For instance, if drug company stocks trade on average at a multiple of 8x earnings, and a company has earnings this year of $6, that stock should trade in the neighborhood of $48. If the prospects for the company are considered better or worse, then that stock could trade with a multiple higher or lower than the 8x.

For stocks with no earnings (as the dot come stocks in the late 1990's), they will trade on some expectation of future earnings power, making them a much more speculative bet. If those earnings do not materialize or that sector falls out of favor, the stock price would most likely crater, much like Yahoo and stocks like it.

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23rd Nov 2009 by Michael Haltman

Stock prices for companies are typically determined by the expectations the market has for future earnings. For stocks that currently have earnings, the price can be determined by placing some multiple on those earnings. For instance, if drug company stocks trade on average at a multiple of 8x earnings, and a company has earnings this year of $6, that stock should trade in the neighborhood of $48. If the prospects for the company are considered better or worse, then that stock could trade with a multiple higher or lower than the 8x.

For stocks with no earnings (as the dot come stocks in the late 1990's), they will trade on some expectation of future earnings power, making them a much more speculative bet. If those earnings do not materialize or that sector falls out of favor, the stock price would most likely crater, much like Yahoo and stocks like it.

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11th Nov 2009 by Gary

Stock prices go up and down based on many reasons. Sometimes they're affected by some news item that causes people to buy or sell, and will result in prices going higher or lower. Over the long term, the performance of a company determines the prices of stock, and that's really the only price that matters as long as you're a long-term investor in a solid company. Other factors generated from fear or other emotions also cause price swings in stock, but they can't last, and those that attempt to time these swings don't do as good as those you wait them out or buy more stock when prices go down.

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