Shares can, and do, go up and down in value for various reasons. However, such movements are not usually for the most obvious of reasons.It would be very simple if a share were priced solely on what the company in question owned - its buildings, cars, computers, value of contracts in the pipeline etc.
The total value minus company borrowings would be divided by the number of shares in issue and there would be the value of each individual share. But there is a fly in the ointment called "sentiment".
Why market sentiment matters
In general, share prices rise on the expectation (rather than the publication) of increased future profits and fall on published facts.
If this sounds entirely mad, bear in mind that if an analyst predicts that ABC company will double its profits then the price will rise at the time of the prediction.
When the results come through, revealing that profits have gone up "only" 75%, the price will probably fall because the current facts are less exciting than the earlier prediction.
Understanding this apparent nonsense is key to appreciating the behaviour of markets in general, and individual shares in particular.
Why companies want to please shareholders
Professional investors buy shares in the hope of benefiting from a rising stream of income over the long term.
When profits are distributed to the shareholders the payments are known as "dividends". The capital value of a share - its quoted price - moves mostly in line with expectations of long term dividend payment.
There are myriad reasons why the expectation may become better or worse. A reduction in alcohol duty would guarantee a rise in distilling companies making whisky. An increase in VAT would hit retailers. More technically, a positive or negative assessment of a company's management ability could change investor sentiment enormously.
So why do companies go through all this daily public examination and give shareholders votes to - in extremis - remove directors from their positions of power?
The simple answer is that "floating" - selling shares in their companies to anonymous investors - raises millions of pounds to allow those same companies to expand into bigger and hopefully better businesses. Companies and shareholders alike have a responsibility to each other.
How does one trade in Shares?
Every transaction in the stock exchange is carried out through licensed members called brokers.
To trade in shares, you have to approach a broker However, since most stock exchange brokers deal in very high volumes, they generally do not entertain small investors. These brokers have a network of sub-brokers who provide them with orders.
