Life
This leads us to the third factor that causes stock price fluctuations. Life. Say, for example, that a wealthy individual dies and his family needs to sell of a substantial amount of stock for tax purposes. Or maybe a large company or institution runs into financial difficulty, wants to build a new production facility or pay down debt. It will sell its shares and stock holdings to cover this expenditures. In both cases, large amount of securities are going to be sold, none of which are in connection to the company performing badly. Even though the stock may be an excellent investment, suddenly there is a large sell order that will drive the price down. This sort of event is, in most cases, unpredictable and can help drive a wonderful business to a selling price below what it is worth. These are the type of investments we are looking to make; great businesses that have been temporarily driven down to unjustifiable lows.All three of these factors work together to help drive stock prices to either extreme. Once an investor understands them, he or she is free to take advantage of them.
Next page > Temporary Problems and How They Lower Stock Prices > << 1, 2, 3, 4, 5, 6, 7, 8 >>
This page is part of Investing Lesson 2 - What Makes Stocks Become Over or Under Valued. If you have already read this lesson, you can skip directly to the Investing Lesson 2 Quiz.
