Stocks Fall – 5 Simple Reasons Why

Why Stocks Fall?

For most of my life, I have focused on trading currencies and commodities. However, I started my career hoping to be a stocks investor like Warren Buffet. Then the notion of waiting for years before making my return on investment was not appealing to me. I then decided to try trading. I have never looked back. Recently, I have tried my hand with stock trading and I have been quite successful. Here are some of the simple reasons why stocks fall.

#1 – Broken Deal

The first reason why a stock fall is because of a deal gone wrong. I started with this point because of its relevance in the present times. Twitter. Twitter is one of the most commonly used tools in the world. Most people use Twitter more than any other application in the world. However, Twitter has remained stagnant in terms of user growth. It has 300M users. A new private company called SnapChat has more than 150M daily active users. Recently, reports came that a number of companies were looking forward to buy Twitter. The company’s stock went up by more than 20%. Last week, all the companies (Google, Salesforce, and Disney) had dropped out of the bidding war. This led to Twitter’s stock falling by more than 30% in two days.

#2 – Missed Estimates

The next simple thing that makes a stock fall is missed estimates. Before the earnings season, analysts from the leading banking organizations put forward their estimates on revenues and earnings per share. On the release day, if the company misses the EPS or revenues or both, chances are that the share price will slide. However, in many cases, companies have announced such results and the share price went up. This is when the company’s key metrics improves. For instance, if a social network misses estimates but still increases the number of users, chances are that its share price can go up.

#3 – Management Changes

Another main factor that can cause a stock’s price to go down is management changes. Managers in a company are very important because they implement the ideas of the board. In many cases, there are reasons why a company’s manager exits. For instance, they can exit because they feel the company has no future. They can also exit to start another company. Since the insiders know the company, an exit can mean that they don’t have confidence in the firm.

#4 – Exit of an Influential Shareholder

Shareholders are very important in companies. They can make the stocks fall or rise up. Big investors are treated like insiders in organizations. This is partly because most of them are given opportunities to be board members. A good example of an influential shareholder is Carl Icahn. When he sold his Apple stock, the shares dropped by 5%. When he bought Pep Boys, the share price went up. As a trader, you should always have in mind the actions of shareholders. You should also look at shareholders who are buying the company. If the shareholders have a good reputation, you should stick with the stock.

#5 – Bad Press

The media can build or destroy a company. A company that is in the media for the wrong reason has no chance of going up unless it releases top notch news. A good example is a company called Valeant (VRX). Its share price had gone up to $250. When the company started receiving bad press, its share price went to $23. Now, if you are a long-term investor, this could be the perfect time to buy and hope the price will go up. If you are a trader, you should be very careful when considering such a company. In this article, I purposely decided to write about the reasons why companies share price fall. Of course there are more reasons why stocks fall. However, those mentioned should be looked at very closely.

Why Stocks Fall? – Useful Links

  • Read more about the latest stocks fall on CNBC
  • Learn the basics on why the stocks fall on Investopedia