Curious about why stocks go down on good news (or up on bad)

Answer: Investing is not science, sometimes expectations are priced in so the news itself doesn't matter in the way you think.

I think it’s help­ful to invest in a com­pa­ny you know, pri­mar­i­ly because when you are inter­est­ed in your invest­ments you’ll learn more about them.

I also believe that you’ll learn more about how the mar­ket works, because you’ll be more curi­ous.

Have you ever seen a com­pa­ny release good news (or announce good earn­ings) and then go down?

It could be because “mar­ket expec­ta­tions” (rather than real­i­ty) were let down. A great exam­ple of this is when a com­pa­ny announces good earn­ings, but gives a fore­cast low­er than ana­lysts were expect­ing. Analysts would then low­er their price pro­jec­tions, which then in turn (pos­si­bly) put down­ward pres­sure on the stock price. (By the way, sim­ple uncer­tain­ty would prob­a­bly also put down­ward pres­sure.)

The real­i­ty is that mar­kets are not gov­erned by tight rules. Prices are a func­tion of demand and the way the mar­ket works — for exam­ple, when mutu­al funds need to rebal­ance they may sell a posi­tion, which if large enough will put down­ward price pres­sure on the company’s stock price, even if noth­ing else about the com­pa­ny has changed.

Anyways, I’m writ­ing this post most­ly to intro­duce anoth­er post I saw, liked, and want to share with you. Please read Today in Market History, Buy the Rumor, Sell the News on The Irrelevant Investor.

Please note: I reserve the right to delete comments that are offensive or off-topic.

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