Supply and Demand - Ultimate Responsibility

So, Portfolio Bunny wanted to know if you could figure out who is responsible for the supply and demand aspect of stock prices and movement in the stock market. Did you make a guess?

Well, Portfolio Bunny would love to say it's her (it would sure be an ego boost!), but that's not true. The answer is (drum roll, please)...

Everyone who buys and sells stock in the stock market. From the largest mutual funds to the smallest investor, everybody plays a part in determining supply and demand in the market. It is the one fact that will save your portfolio from disaster, so don't ever forget it. In future posts, you will learn more about the importance of this commonly ignored fact.

Mental Post-It Note: The market moves up or down based on supply and demand. Supply and demand is determined by everyone who is part of that market.

Supply and Demand - Who's responsible?!

Now that Portfolio Bunny has cleared up the little matter of supply and demand causing the rise and fall of stocks and the stock market, a new question rears its ugly head. Who determines supply and demand? I mean... who's responsible for this?!

Perhaps it is a mysterious group of people sitting in a back room of the NY stock exchange deciding what goes up or down for the day. No. That's not it, although the conspiracy theorists would like to think so...

Perhaps it is the analysts at brokerage firms making recommendations to buy or sell a stock that day. No. That's not it, although that bunch of egomaniacs would like to think so...

Perhaps it is the large pension plans and mutual funds. No. That's not it, although that group of egomaniacs would like to think so...

I know! It's the yahoos at CNBC! No. Although that bunch of talking heads would definitely like to think so...

So, if it's not the NYSE, or analysts, or mutual funds, or talking heads... who's responsible?!

Think about it! Portfolio Bunny will be back with the answer... so stay tuned!

Supply and Demand - A Stock Answer

You already know what drives the stock market (and the supermarket) -- supply and demand.

But have you ever wondered why a stock you own comes out with fantastic earnings, then drops down in price the following day? Or why a stock you own has terrible earnings, but goes up in price and makes a huge run over the next few months? Did you ever wonder why the analysts from the big name brokerage firms keep recommending a particular stock and it keeps going down in price? Admit it! You've wondered about these things.

The answer is, once again, supply and demand. It is the reason a company's value goes up and down. There is no other reason. If there are 10 people willing to purchase a particular stock at a certain price, but there are only 2 people selling that stock at a certain price, since demand outweighs supply, the price of the stock goes up. It's that simple.

And who determines supply and demand? Give it a guess and stay tuned. Portfolio Bunny will be back in a flash with the answer.

Demanding a Supply of Better Answers

In the previous post, Portfolio Bunny said, "There is one and only one thing that causes the market, sectors of the market, or even individual stocks to move in one direction or the other." You were asked to guess the answer. Did you guess it? Did you try?

Well, the market went up over the past few days. Do you know why?

Actually, the answer is just three little words, but before I give them to you, let's give you a few more chances to figure it out yourself...

I'm sure you've noticed gas prices are higher than they were a year ago. Have you wondered why?

How about the higher prices at the supermarket?

And what about housing? In some areas of the country, there was a housing shortage and the prices were increasing as much as 50% a year! Now, there's a glut of new homes on the market and housing prices are decreasing.

So, what do all of these things have in common? Three little words -- supply and demand!

Supply and demand is a basic economic principle. And that, ladies and gentlemen, is what causes the price of stocks to go up and down. Now, you know why the market goes up and down. And now you are smarter than the dumb bunnies who still think it is caused by war, interest rates, or any of the other nonsense the talking heads offer up.

Market Up - Market Down

So, what makes the markets go up one day and down the next; or up one week and down again; or up over a few months only to drop again over the next few months?

Some of the talking heads on CNBC or the Nightly Business Report would have you believe it's the economy. Another talking head will tell you it's the Federal Reserve raising or lowering interest rates. Yet another of the "experts" will tell you it's China or India. Then, on Lou Dobbs, someone else tells you it's the problems in the Middle East. Finally, someone from a brokerage firm tells you it's the housing market. Eventually, if you listen long enough, you will probably hear someone blame the market shift on El Nino!

The fact is all of these things can affect the market--good or bad. But none of these things cause the market to move in one direction or the other. There is one and only one thing that causes the market, sectors of the market, or even individual stocks to move in one direction or the other.

Can you figure out what that is? If you want to take a guess at it, feel free to send your guess in Bunny Chat. Otherwise, stay tuned and Portfolio Bunny will give you the answer... It might surprise you!