Overview
As we all know, stock prices definitely change over the course of time. Some can increase rapidly and make investors a fortune, whereas others can lose a lot of value quickly and bankrupt investors. Stock prices change because of the economics of market forces, and the supply and demand for the stock. This is all based on personal perception. If people think that a company will do better in the future, this will raise the demand and price of the stock, and if they think a company will do worse, this will lower the demand and price of the stock.
Earnings
Probably the most important factor that determines the price of a stock is its earnings. In essence, earnings are the profit that a company makes, and no matter how good a company is, if it does not make positive earnings at some point it can't survive. Companies that are traded on the stock market report their earnings four times a year, or once each quarter. Another important factor is the analyst reports. Analysts at major banks like Goldman Sachs or Merrill Lynch write analyses of various stocks based on their earnings or other factors, and their opinions carry a lot of weight in the public perception.
Sample Stock Charts
The following is a chart of Google's share price for a year after its IPO. As shown on the graph, it rapidly increased from around a hundred dollars to three hundred dollars in a short period of time. Google was reporting solid earnings and good news, and analysts were giving it good recommendations. (From Comstock in 2002)
On the other hand, the graph below shows Enron's stock price over the course of only about a month. From an initial price of $38, it dropped to a low price of only 61 cents. The series of scandals that plagued the company reduced investor confidence, and the demand for the stock dropped precipitously. (Reuters, 2005)
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