Why Stock Prices Go Up and Down, Explained With Tilray

Pretty much everybody understands the basic premise of investing -- Buy low and sell high. Investors want to buy stocks and sell them for a profit after they move up in price. But why do stock prices move up and down in the first place? If you’ve ever asked that question, this video is for you.

In short, stock prices change because of supply and demand. Think of the stock market as a giant auction, with investors making bids for one another’s stocks and offering to sell their own all at the same time. For example, Apple’s shares trade hands over 28 million times a day on average, which translates to nearly 1,200 accepted bids every second of every trading day!

Because there is a limited supply of shares available for sale, bidders must compete with one another for access to shares. The more intense the interest in a stock, the more bidders there are attracted to it, and the less interested current shareholders are in selling their own stock. As a result, potential buyers must bid higher to buy the stock, and the stock price moves up.

This works the other way as well. When interest in a stock declines, fewer competing bids are entered, holders are more interested in selling their stock, and the lower the winning bid price must be.

But what determines investors’ interest in a stock? In short, information. Information comes in many forms: earnings reports, press releases, news stories, court filings, Tweets, general hype, you name it. Investors, whether consciously or not, incorporate each new piece of information they come across into their impression of a stock.

Of course, every investor reacts to new information differently, and those reactions can range widely from apathy to panic to euphoria. Depending on their reaction, investors may choose to buy more shares, hold the shares they have, or even sell.

In turn, these reactions are incorporated into the share price, causing fluctuations in price. Interestingly, the change in share price itself is information that is incorporated by subsequent bidders, and the cycle of information-reaction-price move-information repeats once again.

When supply of a stock is limited and interest is high, a stock’s price can skyrocket. For a recent example of this, let’s take a quick look at Tilray, the first marijuana company to go public directly on the Nasdaq back in Summer of 2018. After going public at $17, the Tilray’s stock soared, eventually reaching a peak of $300 a share.

Much of this rise was driven by a limited supply of publicly available shares, as most of the company’s stock was still privately held by Peter Thiel’s Privateer holdings, as well as a limited availability of other publicly traded cannabis producers for investors to purchase.

Combining the market’s rabid interest in investing in pot with an artificially limited supply of shares led to Tilray’s rapid ascent. However, as other pot companies began publicly trading, demand waned, and when the lockup for private equity investors expired in January 2019, the number of shares on the public market surged, pushing down the stock. Today, Tilray trades 78% below its highs. The law of supply and demand remains undefeated.

If you can imagine this cycle of supply and demand being repeated over and over again among millions of investors and stocks across the world each and every trading day, you’ll have a working idea of the mechanisms that influence daily fluctuations in stock price. As you can probably guess, investors’ reactions to new information aren’t always rational. As long term investors, we look for opportunities to capitalize on the market’s short term irrationality to create long term wealth.

Thanks for watching guys, if you enjoyed this video please smash the like button down below. We’ve got plenty more like this one on our channel, with more videos being added every week.

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[ShaneHummus]

If you bought stocks and price goes down. Don't panic, that's normal. Learned the hard way, and lose some of my capital for some time.

[TheJackCain-]

The market trend can turn around very quickly. In fact, the indexes often switch from a bear market to a bull market when the news is at its worst and the mood of investors is at its lowest point. I read an article of people that grossed profits up to $150k during this crash, what are the best stocks to buy now or put on a watchlist?

[Carlos-]

I feel investors should focus on under-the-radar stocks, considering the current rollercoaster nature of the stock market, Because 35% of my $270k portfolio comprises plummeting stocks that were once revered. I don't know where to go here out of devastation.

[stevensmiddlemass]

As an investing enthusiast, I often wonder how top level investors are able to become millionaires off investing. . I’ve been sitting on over $745K equity from a home sale and I’m not sure where to go from here, is it a good time to buy into stocks or do I wait for another opportunity?

[mikehascats]

short term its a popularity contest. long term its a weighing machine

[kashkat]

The best way to describe the present economy is 08' 2.0. Yes stocks are at a discount and things will eventually get better but my monthly living expense is up $16, 000 from $7000 and I'm left wondering what retirement have in store for me 5years down the line, I'm ill-prepared tbh, my 401k worth about $320k gains are zero-nothing and my stock portfolio?...OH WELL!

[Jay-Atom]

Simple explanation with no unnecessary financial jargon

[autumnwinds]

Thank you for posting this well-explained information.

[SaucyWench]

Capitalize on the markets short term irrationality to create long term wealth. Thank you for that. I just got into this during the Covid era. I only bought about 2500 dollars worth of different stock to see how this worked. So far, everything I bought has been doing better than what I bought it for. Mostly in gaming and travel. But we will see what happens in a year. Thank you for your videos.

[maddoxoehlke]

I find some of the best finance knowledge from youtube comment sections of great videos like these!

[Rebenz]

Not all orders are limit orders - bid and ask. What happens when buy and sell happen with market orders? How the current price is calculated?

[theklrdudeoo]

i thought it was me time i buy a stock it goes down !

[orikanjojames]

Say no to poverty and financial hardship, Mrs Joanna is real I keep earning every week thanks for your help.

[BruceWangOfficial]

I already knew this but still watched it

[jerryhello]

I always wondered what career path Michael Bolton from Office Space ended up in. He's apparently at Motley Fool!

[quantleap]

I have a restricted penny stock. I’ve been trying to sell it but no brokerage will sell it yet I see it going up and down every day. The company does minimal reporting and almost never puts out any press releases or financials. Needless to say it wasn’t a good investment and I’ve been trying to sell it for over a year now but I am finding it nearly impossible. My question is why would this specific stock go up and down? Do some stocks fluctuate based on the overall market which would reflect on this stock even though it’s practically dormant?

[KellySiame-ylnv]

There's always a way of never losing 🌛

[Aziz__]

Interesting, the stock market is currently experiencing a decline while bond yields are on the rise. However, there seems to be skepticism amongst investors regarding the Federal Reserve's plan to continue increasing interest rates until inflation is stabilized. As for myself, I find myself at a crossroads, uncertain whether to liquidate my $250, 000 stock portfolio. I'm seeking advice on the best strategy to capitalize on this current bear market.

[avimehenwal]

But then who updates the NEW prices? How does it happen?
Let me explain my question, I have 100 stocks which I bought for 999$, then I sold them 100 stocks for 500$.
How would above transaction affect the stock price? Who will update the new prices?

[amirunited]

Where does all of this asking and bidding actually take place? Is there some secret club of traders that meet? I'm an investor and bidding and asking ain't offered at any brokerage I've ever seen. All I see is market buy limit buy limit sell stop loss and then a bunch of options. Is that what you mean when you say bidding fool? Or is it the secret club of traders that places the bids. Please clarify.