Why Do Stocks Go Up And Down?

With the recent history of the stock market, one might think that stocks mostly go up. A beginner investor who has invested for the first time within the last handful of years might even think it always goes up. After all, here is a picture of the Dow Jones Industrial Average over the last five years:

As you can see, the chart is a mostly steady progression up with the down periods quite short and relatively pain free. But any experienced investor knows, stocks do go up AND down and you must be prepared for that. 

Today’s Investors Are Spoiled And Expect Too Much

With the current bull run, today’s investors expect the market to go up almost every day. They panic and get frustrated when their stocks go down even just a tiny bit and you can see that by the things some of them post on StockTwits. Its crazy that some new investors get all stressed out when one of the stocks they own has a down day!

Stocks go down when there are more sellers than buyers. Stocks go up when there are more buyers than sellers. Its a simple display of supply and demand and it is perfectly natural for both to happen.

The stock market has now been taken over by traders and short term bettors who want to gamble rather than invest. They never want to take a loss and have little tolerance for risk. Yet what they are doing seems to me to be a lot riskier than what true investors do: buy and hold.

Stocks Go Up And Down: Learn To Live With It

One of the hardest things I had to get used to when I started investing in my 20’s was losing money in the stock market day to day. But anyone who is successful investing in stocks HAS TO GET USED TO IT. There will be down days along with those up days. You absolutely have to learn to accept the good with the bad and know that the market will have its bumps.

There are many times that I lose more money in the stock market on a given day than I make at work. Then there are days I make more in stocks than I do at work too. Either way, I have had to learn to separate the two in my mind and not get too depressed on losing days and not too excited on up days. 

If you are a long term investor or want to be one, being able to manage your emotions and your money is of paramount importance. Panic selling usually ends up in you selling your stock(s) for the wrong reason(s) and later on you regret your decision.

The Fundamentals Are Key

Stocks I buy go down all the time but if I am convinced those companies will in the end be winners, I hold on to the stocks. If the companies fundamentals remain intact, there is no reason to sell. I can’t count the times I have bought a stock and had it go down from the start but after holding on, sometimes for years, I sold it for a gain. Take a look at my current portfolio and depending on when you read this, I probably have a loser or two in there.

Just because a stock is down in the short term doesn’t mean it will be a loser forever. Just because a stock goes down for a day or two, week or two, or even a month or two doesn’t mean you should sell it.

Good stocks go up and down because investors see things different ways, are irrational, panic, have low tolerances, are day traders, and a myriad of other reasons. You need to be steady and stand by your conviction that a company is a good company and not be swayed by others selling if the company is a good one.  

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