suggestions why, page-4

Sorry for the long post :)

One thing that has always intrigued me is why investors seem to think "news" wether good or bad, is the be all and end all in determining share price movement. Logically, the release of good news should translate into an increasing share price however it seems that the reverse increasingly holds true, especially in small caps. If general market sentiment concerning a company’s outlook is positive why does the share price dump hard upon release of upbeat news?

Most investors do not know the value of the company they invest in. They entrust their money with a company on good news only to find the SP eroding shortly thereafter. Fear of loss overwhelms them and they rush to offload their shares before their losses compound only to see the SP rebound in the coming weeks/months.

Company fundamentals do not change drastically from day to day. If I were to place a large sum of money with company XYZ and it releases news, the actual company worth hasn’t changed all that much. The outlook may look a lot brighter or darker but until it becomes reality, logically the SP shouldn’t be greatly affected. If company fundamentals do not change then what causes this volatility in share price?

News is almost always spin and usually based on grains of truth however for the short term it is mostly irrelevant. Human emotions play a pivotal role in driving share prices up and down. In the event of upbeat news investors trample each other as greed takes hold or, rush to out-sell at almost any price when a few large sell orders hit the market. Large investors know this and have the capital to move markets by influencing share prices. Warren buffet can literally send any stock price thru the roof just by showing an interest or send a share price crashing on exiting the same stock.

This poses a particular problem for smaller investors as money is attracted to larger volumes of money. The bond or controlling factor linking the two investor classes is emotion. Markets play out no differently to a gunman demanding cash or else! You can choose to give him your cash (get stopped out) or you can choose to refuse his demands (hold on praying for a rebound.)

Larger investors know the value of the company’s they invest in and are prepared to wait for the returns. They want to pay as little as possible for their shares and will influence smaller investors into selling to them at a discounted rate. Sure their holdings decrease the more the SP tanks however this is of little concern as they have the funds to “average down” their investment. They also have the power to drive up the share price when they have collected their fill.

I see AIM no differently as it is currently being heavily manipulated. Large investors are taking advantage of general credit market fears and are muscling the SP down particularly on days where the indexes are looking shaky. The SP will not recover until these selling walls and bots subside.