[Next Adviser (in partnership with TIME)] Here’s What Causes a Stock’s Price to Go Up or Down — And How to Protect Yourself From Market Volatility

By Dori Zinn, September 27, 2021

Link: https://time.com/nextadvisor/investing/what-causes-stock-prices-to-go-up-and-down/

Here’s What Causes a Stock’s Price to Go Up or Down — And How to Protect Yourself From Market Volatility

Summary

Nobody can predict every element that goes into stock price fluctuations, though many try; that's what a hedge fund trader does. "NextAdvisor" recommends index funds including mutual funds and ETFs as they don't require lots of technical knowledge about the stock market. But you should know them in case of adding individual stocks to their portfolio. 

Here are the factors which move stock prices: Fundamental Factors, Technical Factors, News, Market Sentiment, Bottom Line.

1. Fundamental Factors: composed of profitability and the valuation ratio. Also, P/E (price-to-earnings) ratio is significant; it's useful in comparing the performances of similar companies against one company's records
2. Technical Factors: stock split, time/day of trading, and the stock price movement of another company that is in the same industry.
3. News: news of the unexpected change of the company in the ability to generate future cash flows (required return on investment in equity). Quarterly earnings reports also cause the fluctuation; share price fall in Apple on January 2021, and a few major drops due to COVID-19. 
4. Market Sentiment: The Behavioral Financial Theory, The Animal Spirit Theory. The BFT is the matter of biased investing decisions due to the overconfidence in a particular security or asset. In The AST, people follow the market; when the market is good(bad), investors will buy(sell). Use CBOE Volatility Index (VIX) or "fear index" to measure market sentiment; the higher(lower) the VIX goes, the higher(lower) the fear in the trader.
5. Bottom Line: Diversify your portfolio as much as possible. Invest in ETFs and index funds instead of individual stocks. 

Terms

• index funds: a portfolio of stocks or bonds designed to mimic the composition and performance of a financial market index - S&P Dow Jones Indices for their S&P 500 Index in US 
• mutual funds: a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. 
• Exchange-Traded Funds (ETFs): a type of pooled investment security that operates much like a mutual fund. Unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way that a regular stock can.   - SPDR S&P 500 ETF (SPY), tracking the S&P 500 Index 
• P/E (price-to-earnings) ratio: the ratio for valuing a company that measures its current share price relative to its earnings per share 

Useful Website

Investopedia: https://www.investopedia.com

Investopedia