Why Do Share Prices Go Up and Down?

We all know that stock prices change constantly. If more shares are bought than sold, their price increases; if more are sold than bought, they decrease -- but that's just the math.

In this clip, Gaby Lapera and John Maxfield explain the factors that motivate the mass buying and selling of shares. Listen in to hear how the global economy ties in to share price, and how Foolish investors should consider the news and trends that affect share prices.

A transcript follows the video.

This podcast was recorded on Feb. 2, 2016. 

Gaby Lapera: So, tied into this is another question that we got, which is, what determines a company's share price? A lot of the things we actually mentioned as factors in whether or not a company can stay listed in the S&P also contribute to share price. This is how I see it: share price is ultimately going to be reflective of a company's internal fundamentals as well as what the market as a whole thinks of the company's chance of success in the context of the global economy. That's kind of a lot, do you want to break that down a little bit?

Maxfield: No, no, go for it.

Lapera: No, it's all you, John. It's all you.

Maxfield: (laughs) Okay, I'll take that. So, think about what we're seeing right now. We're on the back end of a really, really long bull market, where, at the beginning of this, stocks, it didn't matter if you were P&G, which is an excellent company, Coca-Cola, which is an excellent company, Walmart, Amazon, or you're a 3D printer, it didn't matter what you were, all stocks were hit in 2009. And then, out of that, you saw stock prices of certain companies come back up much more quickly, and those were your solid companies that were improving much more quickly.

Then, as everything gained momentum, then you had those more speculative stocks really start to pick up, because people are feeling more optimistic about things, they're thinking that everything's turning around the corner, we're three, four years into a bull market and it's at that point where everybody wants to start pouring their money in, which is kind of ironic, you know what I mean?

But yes, you have both that underlying market stuff that's going on, and now we have the concerns in China, we have the low oil prices and ISIS and whatever else, you know what I mean, that's going on with the economy. So, you have those things that are bringing it down. But then, to Gaby's point, you also have, and this is one of the things that we really preach at The Motley Fool -- ultimately, it all comes down to the fundamentals of any company. A really good company will survive through a full cycle, whether it's good or bad, or whatever.

Lapera: Right. There are some companies that are down right now, just because the market in general is down. But it doesn't necessarily mean they're a bad stock. Heck, Berkshire Hathaway (BRK.A -0.99%) (BRK.B -1.13%) is down right now. But they have an outstanding track record, and its fundamentals are strong. Just because it's down right now doesn't mean that there's anything inherently wrong with it. But, for an example of a company that is down, other than Berkshire Hathaway, based on something that's happening in the global economy, is Chevron (CVX -0.38%). They have a lot of exposure to energy, obviously. Right? (laughs)

Maxfield: (laughs) Just a little bit.

Lapera: (laughs) They're an oil company. And I don't know if you've noticed, gas is super cheap right now. That's not great for oil companies.

Maxfield: It's not, but let me tell you something -- and Gaby and I talked about this beforehand -- there's an oil stock that I can't talk about because I want to buy it and I'm under trading restrictions, but you talk to your really big investors right now, and I'm not one of them, I'm a medium investor, but I listen to what they say -- oil is a great opportunity right now. At least, that's certainly what it looks like to a lot of investors. It looks like that to me, too.