The Stock Market / Toilet Paper IndexJune 9, 2020
NO, stocks are NOT toilet paper!
At the beginning of this pandemic, as people panicked about being stuck at home, toilet paper incredibly became much more valuable. Simply put, there was more demand than supply, and in many cases prices went up.
Stocks trade like toilet paper in today’s world
Stock prices go up or down based upon supply and demand. You see, a company has only a certain number of shares of stock outstanding at a point in time. These shares are owned by investors and sometimes people will sell the stock they have. That helps to create the current supply of the stock. There are also buyers who want to own the stock. That creates the demand for the stock. Supply and demand levels have a profound effect on stock prices. When there is more demand for a stock, the price will go up. When there is less demand, in other words, more people selling than buying, a stock price will go down.
What Affects Stock Prices?
So…stock prices are a collection of people making investment decisions — buying and selling. The recent run-up in stock prices is because investor demand has been great…more buyers than sellers.
Many investment decisions (buying or selling) are based upon what an investor thinks will happen in the future. If a company is sound and the future of the economy is optimistic, an investor is more likely to want to buy. The reason stock prices have jumped up recently is because investors believe that the economy will bounce back in the next six months to a year.
Perhaps stock market prices are telling us that the economy will be OK.
Or maybe it is as simple as the increased supply of toilet paper telling us we will be OK.
We shall see.