Stock Market Options and Effects

The price of a stock in the stock market changes based on supply and demand. If more people wish to sell it than buy, then there is greater supply than demand, resulting in the price falling. A potential shareholder, if not relying on a broker to handle the accounts, should research the positive and negative news of a company. The investor should not equate the value of the company with its stock price. A company’s value is its market capitalization, which is defined as the sum of the total amount of various stocks issued by a corporation multiplied by the stocks’ price. The investor should always be aware that the price of stock reflects the anticipated growth of the company, not its current value.

Earnings reports are perhaps the most important factor that affects a company’s value. Every company must have positive earnings, or profit, reports to survive. During earning sessions, investors look at quarterly earnings reports to see if the results are better or worse than expected. If the company’s results are good, then the price jumps, and vice versa.

Market capitalization is not the only indication of a company’s success. During the late 1990s, many internet companies had market capitalizations in the billions of dollars, yet many of them made very little profit. The valuations were unstable and most saw their earnings dwindle during the dotcom bust. This proves that there are other variables i.e. price/earnings ratio, indicators, and moving average convergence divergences, that influence the price of stocks. In fact, no one truly can predict when and why stock prices change. Everyone agrees they are volatile and price is inconsistent and that perhaps looking at past price movements can best indicate when to sell; however, there is no one theory that can explain everything. While investors’ attitudes and expectations ultimately affect stock prices to some degree, it is still extremely difficult to come to a unified theory.

Stocks- Brokerage Firms
Most investors purchase stocks using a brokerage firm. While discount brokerages are inexpensive, full service brokerages offer advice, manage the investors’ accounts, send in statements, research various companies, and usually charge more. Since the buyer and seller are employing the brokerage to complete a deal, the brokerage may collect a percentage of the transaction, money from both parties, or only a commission from the seller. Some brokerage firms have recently begun trading stock in the Internet, which allows their clients more access to research information. Here, the shareholder is extensively involved with the brokerage and research in order to make the best deals. The benefit of brokerage firms is that they save their clients considerable time by facilitating the transactions, which some people are not comfortable doing on their own.

DRIPs & DIPs
Dividend reinvestment plans and direct investment plans allow shareholders to directly purchase stocks directly from the company. These plans are an efficient means of investing small amounts of money at regular intervals, as anyone can construct a portfolio of common stocks with few fees, and they are a popular alternative to using brokers.