Share prices move or change frequently and are volatile investments. The basic underlying principle behind share price movements is that of supply and demand. If more people want to sell a particular share then buy it, the price will fall and vice-versa. However, there are many factors that feed into the notions of buying or selling a share.
Share prices typically move frequently on presentation of financial results. Financial results posted twice a year as well as quarterly trading updates often influence share prices as they are indication as to how a company has progressed on its forecasts.
Regulatory announcements can also influence a share price significantly and these can vary from news of a takeover bid (which commonly sends share prices soaring).
External sources of information can also cause share price movements. In particular, stockbroker analysis from reputable analysts can cause share prices to move depending on whether they suggest a higher or lower ‘target price’ for the stock. Moreover, a company may report a positive set of full year results, but if it falls short of analyst forecasts, then this can also result in a fall in share price.
Investor confidence is also generally stronger when solid economic conditions are present – this tends to increase demand for shares and increases prices.
However, investment in shares is generally seen as an investment with a minimum time-frame of 5 years, therefore it is important not to over-react to daily share price movements unless certain events provide cause for concern in terms of the longer-term prospects.