In this edition of The Motley Fool's "Ask a Fool" series, Motley Fool One analyst Jason Moser takes a question from a reader who asks: "If every share is owned 100% of the time, then what is a "sell off" and how are share prices determined? I always thought selling reduced the price and buying drove prices up -- but if there is an equal number of buys and sells, this can't be." Jason explains that in some cases, buying will drive prices up, but that's when a stock is in demand. But consider a company that has just announced a lot of bad news, prompting investors to head for the exits on the stock. While for every seller there's also a buyer, there's also a fundamental negotiation at work here. Buyers are going to buy only when they feel the price represents enough of a bargain to account for whatever risk may be involved. The buying here isn't pushing up prices; it's soaking up the inventory that's offered up for sale because the sellers want out. And that ultimately is what can cause a sell-off.
- Jan 29, 2014 at 7:52PM