What makes a share price fall?

Julie Brownlee, Fsp Invest, 29 Sep. 2015

Tags: share price, share, what makes a share price fall, investing in shares, prices of shares,

Investing in shares is all about making money. You want to buy a share at a lower price and sell at a higher price, banking a profit.

But there are times when the opposite happens. You buy into a share and its price falls.

So what makes a share price fall?

Read on to find out…

The stock market has expectations of a share

A company’s share price incorporates a set of market expectations. In other words, these market expectations are ‘in the price’.

For instance, the market expects a company to deliver as per its forecasts. For example, when a company states it believes its profits will grow at a certain rate into the future, this is a market expectation.

The market doesn’t really care what happened during a company’s financial year, as long as it meets these forecasts.

If a company doesn’t meet these expectations, expect the share price to suffer as a consequence.

When there is going to be a large discrepancy between forecasts and actual results, a company must inform the stock exchange before its results comes out. These trading updates can lead a share price to tumble.

How to take advantage of a lower share price

If you’re holding a share that doesn’t meet market expectations, it’s not nice to sit back and watch the value of your shares fall.

But if it happens to a company that you’ve got your eye on, a lower share price can be a great thing.

You can take advantage and buy into the share and benefit from the recovery as the company gets back on track. You just need to ensure that your research shows you the worst is over for the share.

So there you have it. What can make a share price fall.

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