Why Does a Stock Go Down in Price When There is a Big Sell Off?

[Garry Greene]

The stock market can be compared to a massive auction, wherein
ownership of large companies is for sale. The investors involved have
varied points of view. While some investors may gauge a particular
company as viable investment and are willing to bid the price up;
there are others who wish to sell off. Such constant variations lead
to the fluctuations in stock prices. Stocks go up when more people
want to buy than sell. When this happens, investors begin to bid
higher prices than the stock has been currently trading. On the other
side, stocks go down because more people want to sell than buy. In
order to quickly sell their shares, people are willing to accept a
lower price.
The number of shares sold of a particular stock on a given day has to
equal the number of shares purchased of that stock on that day. On the
stock market, this is referred to as the "volume". Under certain
circumstances, the stocks at a given point of time become unattractive
to both the new buyer and to the existing owner. The reasons for a
company losing its charm could be many. Stocks could go down due to
slipping of profits, resignation of top executives, a good investor
selling off a big chunk of shares, losing a valuable customer, a
factory burn down, similar stocks going down in the market, an analyst
downgrading the stocks, launching of a better product, shortage of
product supply, scientists rating the product as unsafe, a law suit
filed against the company, lack of popularity of the company and even
rumors misguiding investors in general.
Due to any of the reasons mentioned, the stock of a company could
suffer in value. As a result, shares in that company at the current
price are now less attractive to both, the current company
shareholders and those considering purchasing shares of the company in
question. In such eventuality, those interested in buying the stock
will tend to demand a lower price to accept the company's shares. This
means that the bidding price of the stock gets lowered. On the other
hand, those interested in selling the shares of the same company will
offer a lower price to lure people and get rid of the shares. This
obviously lowers the asking price of the companies stock. Eventually a
buyer and seller will agree on a price, which equates the 'bid' and
the 'ask' and the shares will be sold. This price will naturally be
lower than the price at which the shares were previously selling and
therefore, the stocks go down in price despite a big sell off.
The relationship between the number of goods sold and the number of
goods bought holds good in any market, not just the stock market. The
rates in a stock market go up and down similar to the action of a
bouncing ball. Some investors are tuned to these fluctuations in the
stock market but it can be extremely frustrating for many investors
who desire a steady rise. However, despite the volatility in the
market as a whole and in the individual stocks, an experienced trader
will make profit. In the absence of experience, the individual
investor needs a proven source of information and direction.
Therefore, it is advisable to closely look into the companies
financial statements and assess its worth before making the
investment. One can also study the stocks' past performance, which
would surely indicate the trends in future. In fact such fluctuations
have made many investors into traders, who buy and sell on the
fluctuations of the market and the individual stocks. These traders
make money in any market - up or down!

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