Gallio Letter: What Makes Stock Prices Go Up and Down?
Prices reflect what buyers will pay and sellers will accept. Everything else just influences that supply and demand. Short-term moves are noise; long-term moves reveal actual business performance.
What Makes Stock Prices Go Up and Down?
Key Takeaways
- Prices rise when more buyers than sellers exist at current prices, and fall when more sellers than buyers exist. Everything else influences that supply-demand balance.
- Daily moves are mostly noise with no fundamental reason. Stock prices track actual company performance over years, not days.
- Long-term investors ignore price swings and focus on building consistent habits. Checking daily creates anxiety without insight.
The Basic Mechanism
Stock prices change constantly, and it can look chaotic if you’re watching. But the mechanism is straightforward.
Prices reflect what buyers will pay and what sellers will accept. It’s a continuous auction. Buyers post what they’re willing to pay (the bid). Sellers post what they’ll accept (the ask). When those match, a trade happens. That trade sets a new price.
More buyers than sellers at current prices? Price rises. More sellers than buyers? Price falls. Every trade generates a new price point. Actively traded stocks see thousands of trades per minute, so prices shift constantly. Less traded stocks might see wider gaps between trades.
That’s it. Supply and demand. Everything else just influences which side has more urgency.
What Moves Buyers and Sellers
Company news: Earnings reports, new products, management changes. Good news attracts buyers, bad news triggers selling.
Economic conditions: Interest rates, inflation, employment data. A strong economy increases appetite for stocks. Recession fears reduce it.
Industry shifts: New technology that boosts some companies while threatening others. Think how smartphones ended the camera film business.
Sentiment and mood: Sometimes prices move on emotion rather than facts. Fear pushes down, excitement pushes up. This is the behavior gap in action. People buying high on optimism and selling low on fear.
Institutional flows: Big investors moving millions of shares at once exhaust the supply of willing counterparties, moving prices temporarily.
In the short term, the market is a voting machine where popularity drives prices. In the long term, the market is a weighing machine where actual business results determine them. That distinction matters hugely for how you invest.
Short-Term vs Long-Term Patterns
Daily moves are mostly noise. Up 3% Monday, down 3% Tuesday, with no real news in between. That’s normal. It doesn’t mean anything about the company.
Over years, prices track fundamentals. Companies that grow earnings see prices rise. Companies that struggle see prices fall. Real performance eventually shows up. The chart over decades tells the actual story.
This is why buy and hold works. You ignore the daily noise and capture the long-term signal. Your €200 monthly investment doesn’t care whether the market is up or down today. Over 30 years, you buy at thousands of different prices, and the average works out fine.
Market Gaps
Sometimes a stock opens at a wildly different price than yesterday’s close. Big news arrived after hours: earnings report, major announcement, industry shock.
Great earnings released after the close? Next morning might open 10% higher. No trades happen between close and open, just information absorption and re-pricing. Your broker’s shown price becomes instantly obsolete.
Gaps happen around earnings season, major news, market shocks. Reminder: you can’t always exit at yesterday’s price when markets reopen. The gap can move against you.
Volatility and What It Means
Some stocks swing 5% daily. Others barely move 1%. Higher volatility means more risk and more opportunity. Low volatility means steadier but smaller price movements.
Volatility spikes during uncertainty: earnings season, crises, surprises. It drops when things feel stable and boring.
For long-term investors, volatility mostly doesn’t matter. A stock that swings wildly 5% daily but trends up 7% annually still makes you wealthy over decades. The wild daily moves feel scary, but they average out.
Stay calm. Volatility is normal.
Expectations Matter More Than You’d Think
Prices reflect what people expect, not just current reality. A company can post record profits and have its stock tank if investors expected even more.
By the time you read a headline, the market already processed it. The price adjusted before you could act. This is why day trading is so difficult and why most people fail at it.
Long-term investors skip this game entirely. You’re not betting on next quarter’s surprise. You’re betting on decades of earnings growth. You don’t need to react to news because you’re not trying to time anything.
What Actually Matters and What Doesn’t
Check less. Daily checking leads to emotional decisions. Monthly or quarterly is enough. You’re investing for decades, not days.
Ignore the noise. Unless something fundamental changed about the company or industry, price moves shouldn’t change your behavior. Don’t sell Amazon because it’s down 5% this month.
Use volatility to your advantage. Regular investing means market dips let you buy more shares at lower prices. You’re automatically buying more when things are cheap, which is exactly what you want.
Think in years. Will this price move matter in 10 years? Usually not. Will your consistent monthly investment matter? Absolutely.
The Real Power Play
Your advantage as a long-term investor is that you don’t need to predict or react to daily moves. You can’t control price movements. You can’t control whether the market is up or down tomorrow.
You can control your savings rate. You can control your investment choices. You can control patience.
Use Gallio to track your goals and your progress. Not the daily price of your holdings. The price noise is irrelevant. Your consistency and the years ahead are what matter.
Focus there. Let the daily moves happen. They’re noise in the signal. Your monthly investment is the signal.
Gallio shows you progress toward your actual goals, not daily price swings. When you know you’re on track, the noise loses its power.
What Makes Stock Prices Go Up and Down?
Key Takeaways
- Prices rise when more buyers than sellers exist at current prices, and fall when more sellers than buyers exist. Everything else influences that supply-demand balance.
- Daily moves are mostly noise with no fundamental reason. Stock prices track actual company performance over years, not days.
- Long-term investors ignore price swings and focus on building consistent habits. Checking daily creates anxiety without insight.
The Basic Mechanism
Stock prices change constantly, and it can look chaotic if you’re watching. But the mechanism is straightforward.
Prices reflect what buyers will pay and what sellers will accept. It’s a continuous auction. Buyers post what they’re willing to pay (the bid). Sellers post what they’ll accept (the ask). When those match, a trade happens. That trade sets a new price.
More buyers than sellers at current prices? Price rises. More sellers than buyers? Price falls. Every trade generates a new price point. Actively traded stocks see thousands of trades per minute, so prices shift constantly. Less traded stocks might see wider gaps between trades.
That’s it. Supply and demand. Everything else just influences which side has more urgency.
What Moves Buyers and Sellers
Company news: Earnings reports, new products, management changes. Good news attracts buyers, bad news triggers selling.
Economic conditions: Interest rates, inflation, employment data. A strong economy increases appetite for stocks. Recession fears reduce it.
Industry shifts: New technology that boosts some companies while threatening others. Think how smartphones ended the camera film business.
Sentiment and mood: Sometimes prices move on emotion rather than facts. Fear pushes down, excitement pushes up. This is the behavior gap in action. People buying high on optimism and selling low on fear.
Institutional flows: Big investors moving millions of shares at once exhaust the supply of willing counterparties, moving prices temporarily.
In the short term, the market is a voting machine where popularity drives prices. In the long term, the market is a weighing machine where actual business results determine them. That distinction matters hugely for how you invest.
Short-Term vs Long-Term Patterns
Daily moves are mostly noise. Up 3% Monday, down 3% Tuesday, with no real news in between. That’s normal. It doesn’t mean anything about the company.
Over years, prices track fundamentals. Companies that grow earnings see prices rise. Companies that struggle see prices fall. Real performance eventually shows up. The chart over decades tells the actual story.
This is why buy and hold works. You ignore the daily noise and capture the long-term signal. Your €200 monthly investment doesn’t care whether the market is up or down today. Over 30 years, you buy at thousands of different prices, and the average works out fine.
Market Gaps
Sometimes a stock opens at a wildly different price than yesterday’s close. Big news arrived after hours: earnings report, major announcement, industry shock.
Great earnings released after the close? Next morning might open 10% higher. No trades happen between close and open, just information absorption and re-pricing. Your broker’s shown price becomes instantly obsolete.
Gaps happen around earnings season, major news, market shocks. Reminder: you can’t always exit at yesterday’s price when markets reopen. The gap can move against you.
Volatility and What It Means
Some stocks swing 5% daily. Others barely move 1%. Higher volatility means more risk and more opportunity. Low volatility means steadier but smaller price movements.
Volatility spikes during uncertainty: earnings season, crises, surprises. It drops when things feel stable and boring.
For long-term investors, volatility mostly doesn’t matter. A stock that swings wildly 5% daily but trends up 7% annually still makes you wealthy over decades. The wild daily moves feel scary, but they average out.
Stay calm. Volatility is normal.
Expectations Matter More Than You’d Think
Prices reflect what people expect, not just current reality. A company can post record profits and have its stock tank if investors expected even more.
By the time you read a headline, the market already processed it. The price adjusted before you could act. This is why day trading is so difficult and why most people fail at it.
Long-term investors skip this game entirely. You’re not betting on next quarter’s surprise. You’re betting on decades of earnings growth. You don’t need to react to news because you’re not trying to time anything.
What Actually Matters and What Doesn’t
Check less. Daily checking leads to emotional decisions. Monthly or quarterly is enough. You’re investing for decades, not days.
Ignore the noise. Unless something fundamental changed about the company or industry, price moves shouldn’t change your behavior. Don’t sell Amazon because it’s down 5% this month.
Use volatility to your advantage. Regular investing means market dips let you buy more shares at lower prices. You’re automatically buying more when things are cheap, which is exactly what you want.
Think in years. Will this price move matter in 10 years? Usually not. Will your consistent monthly investment matter? Absolutely.
The Real Power Play
Your advantage as a long-term investor is that you don’t need to predict or react to daily moves. You can’t control price movements. You can’t control whether the market is up or down tomorrow.
You can control your savings rate. You can control your investment choices. You can control patience.
Use Gallio to track your goals and your progress. Not the daily price of your holdings. The price noise is irrelevant. Your consistency and the years ahead are what matter.
Focus there. Let the daily moves happen. They’re noise in the signal. Your monthly investment is the signal.
Gallio shows you progress toward your actual goals, not daily price swings. When you know you’re on track, the noise loses its power.