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| Stock prices, to a certain extent, are determined by the confidence of an investor that is based on either a real or a perceived performance. |
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OTHER FINANCIAL NEWS |
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The principle of supply and demand applies in the stock market.
Many people are still confused about the pricing of stocks and the movements of prices when they read through the list of stock prices in the newspapers.
There is a wide variety of stock prices and there are many people who keep on wondering why some well-known companies are being traded for relatively low prices while some lesser known companies are being traded for excessively high prices.
Stock prices, to a certain extent, are determined by the confidence of an investor that is based on either a real or a perceived performance. The financial status of companies is reported on a quarterly basis when their cash flow, sales, and earnings as disclosed. The worth of a company is based on its financial status but it can be overrode or undermined by the speculation of the investors.
Rumors spreading in the stock market usually affect the fate of the stocks. For example, an ongoing rumor stating that a particular company is planning to make a strategic move will cause investors to come flocking just to buy stocks from that company. The principle of supply and demand applies in the stock market. A sudden upsurge in the interest of investors will cause the stock prices to rise while a fear among investors will cause the prices to plummet. The worth and the performance of a company are still considered to be the biggest factors in the determination of stock prices.
Stock prices can be found in the daily market summaries of newspapers or online sources. Your stockbroker will also provide quotes which can be accesses either via the Internet of via telephone.
About stock splits
The prospect that a certain stock may split to give the stockholders twice as many shares as they had before is one of the most alluring myths that surround the stock market. Although investors have more stocks after a split, the value of each share they receive is actually reduced. A company that decides to split its stocks will issue one new share for every single outstanding and will cut the value of each share in half. Even if the shares of the stockholders actually double, the total value of the stocks are still the same as before.
Why stock splits
The reason why companies do stock splits can be explained by investor psychology. A stock with an excessively high price-per-share will cause the investors to feel that it is out of their reach. To make the shares more affordable to smaller investors, the company will opt for a stock split in order to reduce the price of the stocks. Small investors can actually buy a smaller number of pre-split shares for the same price but they sometimes opt to buy split shares due to the appeal of buying stocks for much lower prices.
A low price per share can result to greater liquidity since stocks with lower prices are easier to sell. This is true especially for the stocks which are priced in hundreds of shillings because small investors consider them to be out of their budget. The high bid/ask spread, which is the difference between the buying and selling prices, can also put off bigger investors.
A stock split is considered to be an indicator of a bullish market, which is a market condition wherein the prices of the stocks and the profits of the companies both increase. Even if there is a short-term rally around a stock that splits, the market tends to normalise after a short period of time.
Reverse splitting
The reduction of the number of outstanding shares that will cause the stockholders to have fewer shares than before is called reverse splitting. Reverse stock splits are less common than stock splits. There are several reasons why companies do reverse stock splits. These may be due to an attempt to stave off possible de-listing on the stock exchange, an effort to push out minority stockholders from the company, an attempt to shed off possible consideration as a poor investment, or an effort to push through ideas of going private.
The bottom line is that stock splits do not have any effects on the worth or the performance of a company. Although it may be nice for the investors to own more shares, they also have to face the fact that the value of their shares still remains the same.
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