6 Reasons Why Stocks Go Down

Most investors, when they see their stock going down. They can't control their emotions and quickly want to sell the stock. So they dont lose more of their investment.

Most investors make decisions based on emotions, not on facts. That's why they can't resist but sell their stock which in a few months bounces back and go to a new high, then they regret it.

“The stock market is a device to transfer money from the impatient to the patient.”

Warren Buffett

Whenever a stock goes down, rather than getting emotional and selling the stock, Know the reason behind the stock going down.

When you find an explanation of why the stock is going down, You will rationally understand what you should do, whether to sell the stock, buy more, or don't do anything.

There are many reasons why the company stock goes down. Some of the main reasons a company's stock may go down are.

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1. The company is losing customers

Netflix has grown its subscriber every year in the long run. But suddenly, in the first quarter of 2022, it lost customers for the first time, and it shocked the investor.

So the stock fell by more than 30 percent because investors expected Netflix to grow their subscriber.

But they are losing their customers because of new competition that has more quality content than Netflix.

So investors are uncertain about Netflix's future. Although, Netflix has a first bad quarter where they lose customers.

But whenever a company is losing customers every year, This is a red sign, and it may be that their competitors are taking over their customers.

You should avoid investing in companies that are losing customers year after year, and their stock goes down for the right reason because they are not performing well and losing customers.

2. Macroeconomic factors

Sometimes a company's stock may go down because of macroeconomic factors that impact the company negatively, and its stock price will suffer.

At the start of covid, airlines and restaurant stock went down significantly. Because everyone is in their home, No one is traveling and going out to restaurants.

So this unexpected macroeconomic factor affects the airline and restaurant companies, and their stock suffers a lot.

Companies that are too dependent on macroeconomics factors are risky to invest in. So any investor should be aware of the risk of investing in companies, which dependent on macroeconomics factors, such as the airline industry.

Most investors try to predict macroeconomic events but fail to predict most of the time.

Companies like coca-cola are not too dependent on macroeconomic factors. Whether people are outside or in the home, They will still drink coke.

When you invest in companies that are too dependent on macroeconomic factors, When anything happens to the global economy, it will suddenly affect your company's stock price.

3. Negative news about the company

Most often, the stock goes down because of bad news about the company. For example, when unionization activities started at Starbuck. Their stock price went down a lot. The Starbucks stock is down 35% on 27 April 2022, year to date.

Most investors panic about some recent bad news about the company and sell the stock, which drives the stock price down.

Although, some bad news can hurt the stock price in the long run.

But often, if you are investing for 5 or 10 years and believe the company will do better in the long term. Then the current bad news about the company shouldn't worry you. in fact, You can buy the company stock at a lower price, which increases your capital gain.

4. Insiders are selling a significant amount of shares in the company.

When the CEO of the company sells a lot of shares in their company, It indicates to investors that the company's future is not great. So investors also sell their stock which drives the stock price down.

When insiders are selling a lot of shares in the company, it is a red flag for investors about the company's future.

It is one of the reasons why stock prices go down. Insiders sell shares, and investors get a red flag. So investors also sell their stake in that company which drives the stock price down.

Whenever an insider sells a lot of stock, it is a red flag because it indicates that an insider doesn't think the company will perform well in the future.

But you have to carefully identify the reason behind insiders selling their shares. They may sell some shares to buy a new mansion or something.

When an insider sells the majority of shares in their company, It is usually a negative sign and drives the stock price down.

5. Company stock was overvalued and may go down to what they worth.

When people notice YouTubers and analysts telling a certain stock will go up in the long term. Everyone feels too optimistic about the company's future, and people start buying the stock. It drives their stock price higher.

When more and more people come and buy the stock. It drives the stock price to go even higher.

But in the long term, the stock would go to what the company is worth.

Thats why some stocks go down, people create the hype, and everyone buys the stock to make a quick profit, which drives the stock price higher. The stock price only goes up because of investor optimism, and eventually, it goes down.

Some companies are not worth what their stock price usually tells. So it eventually goes down to what they are worth.

6. Bad earnings

Most stocks go down because of bad earnings. Sometimes companies report bad earnings because of some short-term issue, but they are still a good quality business. But still, the stock may go down.

It is the best time for an investor who thinks the company has a bright future to buy stock cheaply and increase return when the stock recovers.

Some companies report bad earnings because they are not growing as they used to or have more competition in their industry.

Conclusion

Investors panic when their stock goes down. Instead, This is the time you have to control your emotion and identify the reason behind the stock price going down. So you can understand if you still want to hold that stock or let go.

Although there are many reasons why stocks go down, these are some main reasons stocks would go down. Knowing why the stock goes down will help you better understand your position in that company and help you make better investment decisions.

“A 10% decline in the market is fairly common—it happens about once a year. Investors who realize this are less likely to sell in a panic, and more likely to remain invested, benefitting from the wealth-building power of stocks.”

Christopher Davis

Please note this content is only for informational purposes.

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