I’ve read about these concepts and constantly hear them but I still don’t understand how money/assets fluctuations happen
In: Economics
It’s easier if you don’t think of stocks as “a piece of paper you buy and hope it increases in value” but rather “a percentage of a company”. My buddy Dave has an ice cream truck. His ice cream company needs money so he splits the company into 1000 shares and sells some of them for $10 each. This means his company is valued at $10,000. If I buy a share, I literally own 1/1000 of his company.
A few months later, it is a hot summer and the truck is becoming famous. It makes more money. The company is worth more money than before. Say, $20,000. That means my 1/1000th of the company is worth $20.
Now I hear rumors about a proposed new sugar tax. It will make ice cream more expensive. I fear that the ice cream trucks will not make as much profit if that happens, so I try to get rid of my share. Problem is, other people have heard the rumors too, and no one is willing to pay $20. The most I get offered is $15. Suddenly, the ice cream company is only worth $15,000.
That is the point of fluctuations. A share is, by definition, worth what someone is prepared to pay for it right now. When people have less money, they buy fewer stocks. When interests go down, it is easier to borrow money to buy stocks, so more people want to buy stocks. Then stocks get more expensive. At every given moment, there are a lot of different things affecting both the stock market in general and specific stocks in particular.
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