What causes a stock price to go down?

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Die Hard
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What causes a stock price to go down?

Post by Die Hard »

Calling all Bogleheads...........Question of the day.......

What causes a stock price to go down?

I work for a publicly traded company whose stock was just under $70 in August (highest ever). It's now trading around $35..........The CEO sold ~ as follows in August:

Automatic Sale at $50.92 per share $636,500
Sale at $64.52 per share $645,200
Sale at $62.52 per share $625,200
Sale at $62.37 per share $1,247,400
Automatic Sale at $62.26 - $62.53 per share $780,000

Made me a little nervous, although I'm not exactly sure why :oops: I'm still learning.......
The best way to teach your children about money is to not have any.............
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cflannagan
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Post by cflannagan »

When there are more sellers than buyers for the stock, it causes prices to go down.
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White Coat Investor
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Post by White Coat Investor »

The CEO unloaded $3 million worth of stock in August and you didn't? That would seem like a pretty good sell indicator to me.
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Die Hard
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Post by Die Hard »

EmergDoc wrote:The CEO unloaded $3 million worth of stock in August and you didn't? That would seem like a pretty good sell indicator to me.
I agree 100%, but unfortunately I didn't have that much to unload or I would have. Just started with the company in August.

401K is matched with company stock.

How long does it take for a sale like this to list on "Insider Transactions" once the transaction takes place. Isn't it like 48 hours or something?

I agree.......If I had alot of stock at the time, I'd have been selling myself. Pretty solid sell indicator........
The best way to teach your children about money is to not have any.............
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tetractys
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Post by tetractys »

Supply & Demand -- When the demand to sell is greater than the demand to buy prices drop to match buyer's bids. And when the demand to buy is greater than the demand to sell, buyers must bid more for available shares.

This is what's meant when you hear that there's more buyers than sellers, or vise versa. Some people argue that there can't be more buyers than sellers; but this is ridiculous because one seller can sell thousands of shares to hundreds of buyers.

Pretty simple, Tet
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Tall Grass
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Re: What causes a stock price to go down?

Post by Tall Grass »

Die Hard wrote: What causes a stock price to go down?
When, at a specific point in time, more folks believe a stock will lose you money than make you money.

Anything else said is yada, yada, yada...
Last edited by Tall Grass on Sun Nov 23, 2008 1:21 pm, edited 1 time in total.
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msi
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Post by msi »

If you're wondering why the perception changed that owners wanted to get rid of it...could have been an analyst downgrade, could have been a bad earnings report, etc. Lot of things
grayfox
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Post by grayfox »

tetractys is correct, it is Supply and Demand.

But then the question becomes: "What factors affect the supply and demand?"

That is more difficult to answer because it involves a complex mix of exogenous events, company and industry fundamentals, the macro economy and investor psychology.

P.S. I only replied to this so I could use the word "exogenous" :)
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bearwolf
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Post by bearwolf »

EmergDoc wrote:The CEO unloaded $3 million worth of stock in August and you didn't? That would seem like a pretty good sell indicator to me.
It also depends on how the CEO is compensated, some CEOs take a token salary $1 or something and rely on stock for daily living. This might have been a normal sale to fund lifestyle. If his salary is purely stock based he might sell on a regular basis. Was this a one time sale?

BearWolf
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paulob
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Post by paulob »

I know from other posts that you work in Health Care. Back in August, the Presidential race probably had a negative impact on that industry's prospects and thus stock prices.

While your company declined 50%, Vanguard's health care fund declined 28% for the last three months. So, I would want to know why my company declined more than the overall industry. You might try comparing your company vs a company in the same subsector of health care. Vanguard's fund, I believe, is more weighted to healthcare products rather services. E.G. it includes drug manufacturers and equipment makers and not just service providers who also provide related equipment.

While insider selling is never a bullish sign, it still might not be as bearish, given market conditions.

As a less than C-level employee, you likely were (and are) more diversified in your investments and wealth than the CEO. A CEO selling to lessen risk in their portfolio, to me would a sign of a CEO that doesn't bury their head in the sand. Could the selling been triggered by stop loss targets?

As an employee of this company and not as an investor, in this market, I would pay more attention to the financials (P&L, balance sheet, 10-Q's) than I would the stock price.

Another item to research, how much of the CEO's holdings were sold? A 10% sale is not as alarming as a 100% sale.
Last edited by paulob on Sun Nov 23, 2008 10:09 am, edited 1 time in total.
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Post by Bigfoothunter »

The value of a share of stock is derived for the value of the company, in terms of it's current financial picture, but also and more importantly its prospects for future earnings. You share represents a share of ownership in both of those elements.

The market comprises a buyer and a seller. They buyer believes that the stock is a value at a certain price, and the seller believes that the value is rich at a certain price. The perceptions are derived from the financials and prospects for earnings in the future, the latter heavily influenced also by macro economics as we see in market today which may be beyond the control of the company management. If a stock stayed at a certain price forever and fixed, it would be unnatural as the financials and earnings picture changes daily, thus the prices are always changing to the perceptions of the company itself.

This is a very simplistic summary, but hope it is helpful. Best, Bigfoot
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Post by nisiprius »

The stock market is literally an auction. You don't see it when you buy or sell "at the market price" but what literally happens is that there will be a bunch of outstanding orders saying "I'm willing to sell X number of shares for $40.00 each," "I'm willing to sell Y shares for $39.99 each," "I'm willing to sell Z shares for $39.98 each," and, on the other side, a bunch of outstanding offers, "I'm willing to buy P shares for $39.99 each," "I'm willing to buy Q shares for $39.98 each," "I'm willing to buy R shares for $39.97" each.

The computers match up all the offers, and executes all the trades for which a willing buyer and seller can be found who agree on the price.

If there is nobody willing to buy at more than $39.99 then the people trying to sell for $40.00 don't succeed in selling their shares. They are forced to reduce their price if they want to sell them. The "market price" is the price at which the last trade actually took place, and would drop to $39.99.

Or something like that. You can look up the precise way it's done if you actually care.
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Die Hard
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Post by Die Hard »

Thanks all who have replied.........don't get me wrong, I love my job and the company I work for. I felt no better learning curve than with something I am personally involved in. You guys / girls are so smart!

It also depends on how the CEO is compensated, some CEOs take a token salary $1 or something and rely on stock for daily living. This might have been a normal sale to fund lifestyle. If his salary is purely stock based he might sell on a regular basis. Was this a one time sale?
bearwolf
It appears that back in Nov 07 there were other sales which also added up in the millions......

As of Aug 08, CEO still owns 170,614 shares...I'm assuming this is a good thing.
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Post by mephistophles »

The stock market causes prices to go down. The stock market causes prices to go up.
fr
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Post by fr »

The biggest single factor is that there has been a fundamental change in the risk premium for stocks. Until recently, investor dismissed the riskiness of stocks, at least if held for a long period of time, like 10 years. In the past few months, people have had a change of heart, and the result is that stocks are now priced more in line with history. Namely, stocks are priced to return 6% real versus 3% real for essentially risk-free TIPS. Last year, stocks were priced to return about 4% real, which is way below the historical averages.

A long bull market lulls investors into thinking that stocks have little long-term risk, so they demand less of a risk premium, which in turn reinforces the bull market. A long bear market has the opposite effect. The risk premium increases, thus driving prices down, which causes a further increase in the perceived riskiness of stocks and further rises in the risk premium demanded by buyers and hence further price declines. Booms and busts are alike self-reinforcing, in stocks and other investment markets as well.

More than likely, nothing has changed about your company or its earnings outlook. What has definitely changed since August is the prices investors are willing to pay to own a piece of the future earning of any company, as opposed to keeping their money in less risky places.
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Post by SP-diceman »

What causes a stock price to go down?
Typically, me buying it.

Thanks
SP-diceman
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Post by cato »

Die Hard wrote:How long does it take for a sale like this to list on "Insider Transactions" once the transaction takes place. Isn't it like 48 hours or something..
The Form 4 filing requirement is 3 business days. Most of the ones I watch appear on the Edgar system in 1 or 2 days.
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Post by White Coat Investor »

fr wrote: Namely, stocks are priced to return 6% real versus 3% real for essentially risk-free TIPS. Last year, stocks were priced to return about 4% real, which is way below the historical averages.
While I agree with your explanation, I can only hope your numbers are right. I fear that perhaps last year stocks were priced to return 0% real and now they're priced to return 3% real.
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Re: What causes a stock price to go down?

Post by myinvestorsplace »

There are so many reasons for this questions and as our point of view there are some investors in stock raised their stock value and also their selling amount.
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Post by Tall Grass »

SP-diceman wrote:
What causes a stock price to go down?
Typically, me buying it.

Thanks
SP-diceman
Can you keep us advised as to what you are buying?
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