I see news articles about stock prices going up or down due to investor confidence or trust. How can group-think affect a stock price that rapidly is the value of the company is largely unchanged?
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What’s alluded to, but not clearly stated, is that the stock market isn’t like, say, the grocery store.
At a grocery store, the store sets the prices & people either take it or leave it.
The stock market is more like eBay, where there are a bunch of identical listings & room to haggle.
People who have shares to sell say “This is how many shares I have to sell & the lowest price I’m willing to take”.
People who want to buy shares say “This is how many shares I want to buy and the highest price I’m willing to pay”.
They then move up or down to meet each other and make a deal.
The stock market is just a way of bringing those people together.
The price you see is nothing more than “This is where the buyer and seller are meeting”.
The entire market is based on what you refer to as “group-think”.
If people think something bad is going to happen, they want to get out before other investors catch on & stop buying. But they’ll be desperate to sell and could potentially push the price down if they’re dealing enough.
If people think something good is going to happen, they want to get in before the price skyrockets, and are willing to offer more to do it, thus potentially raising the price.
It’s essentially just supply and demand. It’s not based on what actually happens, but, rather, how shareholders & wannabe shareholders perceive what’s happening/about to happen.
You’re essentially betting that other people will eventually want to buy your stock at a higher price when you buy.
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