Why Stock Prices Go Up and Down, Explained With Tilray
Audio Brief
Show transcript
This episode covers how supply and demand, driven by information, fundamentally move stock prices.
There are three key takeaways from this discussion. First, stock price movements are primarily dictated by supply and demand. When demand for shares exceeds supply, prices rise; when supply outweighs demand, prices fall.
Second, investor interest, and thus demand, is fueled by new information. Everything from earnings reports to social media influences market reactions. Third, long-term investors can capitalize on the market's short-term irrationality and overreactions to build wealth over time.
Understanding these dynamics offers a clearer perspective on market fluctuations.
Episode Overview
- The video explains that the fundamental reason stock prices move up and down is the economic principle of supply and demand.
- It describes the stock market as a massive, continuous auction where investors bid on a limited supply of shares.
- The primary driver of investor interest (and thus demand) is new information, which can come in many forms, from official reports to social media hype.
- A case study of the cannabis company Tilray is used to illustrate how extreme shifts in supply and demand can cause a stock's price to skyrocket and then fall dramatically.
Key Concepts
- Supply and Demand: The core concept explaining stock price movement. When demand for a stock exceeds its available supply, the price rises. Conversely, when supply outstrips demand, the price falls.
- The Market as an Auction: The stock market operates like a giant auction where buyers must bid higher to acquire shares when interest is high, pushing the price up.
- The Role of Information: Investor interest is shaped by information. This includes earnings reports, press releases, news stories, court filings, and even tweets, all of which influence the decision to buy, sell, or hold.
- The Information Feedback Loop: New information causes investor reactions, which moves the stock price. This price change itself becomes new information that subsequent investors react to, creating a continuous cycle.
- Market Irrationality vs. Long-Term Investing: Investors' reactions to information are not always rational and can be driven by emotions like panic or euphoria. Long-term investors can leverage these short-term irrational movements to build long-term wealth.
Quotes
- At 00:21 - "In short, stock prices change because of supply and demand." - The speaker provides the central thesis for why stock prices fluctuate.
- At 01:14 - "In short, it's information." - The speaker answers the question of what determines investors' interest in a stock, identifying information as the key catalyst.
- At 03:31 - "As long-term investors, we look for opportunities to capitalize on the market's short-term irrationality to create long-term wealth." - The speaker explains how to apply this knowledge from a long-term investing perspective.
Takeaways
- View stock price changes through the lens of supply and demand to better understand market dynamics beyond simple day-to-day noise.
- Recognize that information is the fuel for the market; how investors collectively interpret and react to news is what ultimately moves prices.
- Adopt a long-term mindset to take advantage of opportunities when the market overreacts to short-term news, creating potential bargains for patient investors.
