Why do stock prices of retailers not surge during the holidays?
"Systemic and well know patterns in sales are priced in to the security.  Typically companies with very cyclical earnings like this will issue guidance of earnings per share within a range.  These expected earnings are priced in before the earnings are actually booked.  If a company meets these expectations the stock will likely stay relatively flat.  If the company misses this expectation, the stock, generally, will get slammed.   This kind of Wall Street behavior typically mystifies media outlets when a company's stock declines after reporting a record high level of whatever metric.  The record high is irrelevant if it misses the expectation. There is no crystal ball but if something is both well known and expected it's already been ""priced in.""  If the well known expected event doesn't occur, maybe it's a new normal." "The expected holiday sales are ""known"" or actually guessed at beforehand, and stock prices move in line with these expectations before the holiday. If the actual post holiday sales are more or less in line with the ""guess,"" little stock price movement takes place. It's when the actual sales differ (materially) from the ""guessed"" sales that prices move up or down in the appropriate direction.  What happens is that the market ""anticipates"" or ""guesses"" first and ""reacts"" later, if necessary." "I think the question can be answered by realizing that whoever is buying the stock is buying it from someone who can do the same mathematics. Ask your son to imagine that everyone planned to buy the stock exactly one week before Christmas.  Would the price still be cheap?  The problem is that if everyone knows the price will go up, the people who own it already won't want to sell.  If you're buying something from someone who doesn't really want to sell it, you have to pay more to get it.  So the price goes up a week before Christmas, rather than after Christmas. But of course everyone else can figure this out too.  So they are going to buy 2 weeks before, but that means the price goes up 2 weeks before rather than 1 week.  You play this game over and over, and eventually the expected increased Christmas sales are ""priced in"".  But of course there is a chance people are setting the price based on a mistaken belief. So the winner isn't the person who buys just before the others, but rather the one who can more accurately predict what the sales will be (this is why insider trading is so tempting even if it's illegal).  The price you see right now represents what people anticipate the price will be in the future, what dividends are expected in the future, how much risk people think there is, and how that compares with other available investments." If you look at S&P 500's closing price for the first trading day on December and January for the last 20 years, you will see that for 10 of these years, stocks did better overall and for 10 others they did worse. Thus you can see that the price of stocks do no necessarily increase. You can play around with the data here "That's a pretty good question for a six-year-old! In addition to the good answers which point out that expectations are priced in, let's deny the premises of the question: Sales do not increase the value of a company; a company could be, for example, losing money on every sale. Share prices are (at least in theory) correlated with profits.  So let's suppose that company X is unprofitable 320 days a year and is relying upon sales in late November and December to be in the black for the year. (Hence ""black Friday"".)  Carefully examine the supposition of this scenario: we have a company that is so unprofitable that it must gamble everything on successfully convincing bargain hunting consumers in a weak economy to buy stuff they don't actually need from them and not a competitor. Why would this inspire investor confidence? There are plenty of companies that fail to meet their sales targets at Christmas, for plenty of reasons." "Your explanation is nearly perfect and not ""hand wavy"" at all. Stock prices reflect the collective wisdom of all participating investors. Investors value stocks based on how much value they expect the stock to produce now and in the future. So, the stability of the stock prices is a reflection of the accuracy of the investors predictions. Investor naivity can be seen as a sequence of increasingly sophisticated stock pricing strategies: If investors were able to predict the future perfectly, then all stock prices would rise at the same constant rate. In theory, if a particular investor is able to ""beat the market"", it is because they are better at predicting the future profits of companies (or they are lucky, or they are better at predicting the irrational behavior of other investors......)" "I used to be in research department for big financial data company.   Tell your son that there are three factors: Most people think that net sales vs. expectations is the only factor.  It might not even be the biggest.  It is simply how much money did company make.  Note that this is not how many units they sold.  For most companies they will have adjustable pricing and incentives in their sector.  For example let's talk about a new company selling Superman Kid's Bikes (with a cape the flips out when you hit a certain speed).  The company has it in Walmart at one price, Target at another, Toys R' Us even cheaper, Amazon (making more profit there), and other stores.  They are doing ""OK"" come Dec. 1 but holiday season being half way over they slash price from $100 to $80 because they have tons of inventory.  What are looking at her is how much money did they make.  Note that marketing, advertising, legal (setting up contracts) are a bit fixed. In my opinion consumer sentiment is the #1 thing for a company that sells a product.  Incredible consumer sentiment is like millions of dollars in free advertising.  So let's say Dec. 15th comes and the reviews on the Superman Bike are through the roof.  Every loves it, no major defects.  Company can't even supply the retailers now because after slashing the price it became a great buy.  A common investor might be pissed that some dummy at the company slashed the prices so they could have had a much better profit margin, but at the same time it wouldn't have led to an onslaught of sales and consumer sentiment. And the last area is product sell-off.  This doesn't apply to all product but most.  Some products will only have a technology shelf life, some will actually go bad or out of fashion, and even selling Superman bikes you want to get those to the store because the product is so big.  So ignoring making a profit can a company sell off inventory at or around cost.  If they can't, even if they made a profit, their risk factor goes up. So let's get back to Superman Bikes.  This is the only product company ABC has.  They had expected holiday sales at 100 million and profits at 40 million.  They ended up at 120 million and 44 million.   Let's say their stock was $20 before any information was gathered by the public (remember for most companies info is gathered daily now so this is rather simplistic).  So you might expect that the stock would rise to maybe $24 - to which if you were an investor is a great profit. However this company has a cult consumer following who are waiting for the Captain America Bike (shoots discs) and the Hulk Bike (turns green when you go fast).  Let's say consumer sentiment and projections base off that put next holiday sales at $250 million.  So maybe the company is worth $40 a share now.  But consumer sentiment is funny because not only does it effect future projections but it also effects perceived present value of company - which may have the stock trading at $60 a share (think earnings and companies like Google).  Having a company people feel proud owning or thinking is cool is also a indicator or share worth. I gave you a really good example of a very successful company selling Superman Bikes... There are just as many companies that have the opposite happening.  Imagine missing sales goals by a few million with bad consumer feedback and all of a sudden your company goes from $20 to $5 a share." Excellent question for a six year old! Actually, a good question for a 20 year old!  One explanation is a bit more complicated. Your son thinks that after the Christmas season the company is worth more. For example, they might have turned $10 million of goods into $20 million of cash, which increases their assets by $10 million and is surely a good thing. However, that's not the whole picture: Before the Christmas season, we have a company with $10 million of goods and the Christmas season just ahead, while afterwards we have a company with $20 million cash and nine months of slow sales ahead.  Let's say your son gets $10 pocket money every Sunday at 11am. Five minutes to 11 he has one dollar in his pocket. Five minutes past 11 he has 11 dollars in his pocket. Is he richer now? Not really, because every minute he gets a bit closer to his pocket money, and five past eleven he is again almost a week away from the next pocket money On the other hand... on Monday, he loses his wallet with $10 inside - he is now $10 poorer. Or his neighbour unexpectedly offers him to wash his car for $10 and he does it - he is now $10 richer.  So if the company got robbed in August with all stock gone, no insurance, but time to buy new stock for the season, they lose $10 million, the company is worth $10 million less, and the share price drops. If they get robbed just before Christmas sales start, they don't make the $20 million sales, so they are $10 million poorer, but they are $20 million behind where they should be - the company is worth $20 millions less, and the share price drops twice as much. On the other hand, if there is a totally unexpected craze for a new toy going on from April to June (and then it drops down), and they make $10 million unexpectedly, they are worth $10 million more. Expected $10 million profit = no increase in share price. Unexpected $10 million profit - increase in share price.  Now the second, totally different explanation. The share price is not based on the value of the company, but on what people are willing to pay. Say it's November and I own 100 shares worth $10. If everyone knew they are worth $20 in January, I would hold on to my shares and not sell them for $10! It would be very hard to convince me to sell them for $19!  If you could predict that the shares will be worth $20 in January, then they would be worth $20 now. The shareprice will not go up or down if something good or bad happens that everyone expects. It only goes up or down if something happens unexpectedly. While there are lots of really plausible explanations for why the market moves a certain way on a certain day, no one really knows for sure.  In order to do that, you would need to understand the 'minds' of all the market players.  These days many of these players are secret proprietary algorithms.  I'm not quibbling with the specifics of these explanations (I have no better) just pointing out that these are just really hypotheses and if the market starts following different patterns, they will be tossed into the dust bin of 'old thinking'. I think the best thing you can explain to your son is that the stock market is basically a gigantic highly complex poker game.  The daily gyrations of the market are about individuals trying to predict where the herd is going to go next and then after that and then after that etc. If you want to help him understand the market, I suggest two things.  The first is to find or create a simple market game and play it with him.  The other would be to teach him about how bonds are priced and why prices move the way they do.  I know this might sound weird and most people think bonds are esoteric but there are bonds have a much simpler pricing model based on fundamental financial logic.  It's much easier then to get your head around the moves of the bond markets because the part of the price based on beliefs is much more limited (i.e. will the company be able pay & where are rates going.)  Once you have that understanding, you can start thinking about the different ways stocks can be valued (there are many) and what the market movements mean about how people are valuing different companies. With regard to this specific situation, here's a different take on it from the 'priced in' explanation which isn't really different but might make more sense to your son: Pretend for a second that at some point these stocks did move seasonally.  In the late fall and winter when sales went up, the stock price increased in kind.  So some smart people see this happening every year and realize that if they bought these stocks in the summer, they would get them cheap and then sell them off when they go up.  More and more people are doing this and making easy money.  So many people are doing it that the stock starts to rise in the Summer now.  People now see that if they want to get in before everyone else, they need to buy earlier in the Spring.  Now the prices start rising in the Spring.  People start buying in the beginning of the year... You can see where this is going, right?  Essentially, a strategy to take advantage of well known seasonal patterns is unstable.  You can't profit off of the seasonal changes unless everyone else in the market is too stupid to see that you are simply anticipating their moves and react accordingly.
"Why only long term investments? What do they care if I buy and sell   shares in a company in the same year? Simple, your actually investing when you hold it for a long term. If you hold a stock for a week or a month there is very little that can happen to change the price, in a perfect market the value of a company should stay the same from yesterday to today so long as there is no news(a perfect market cannot exist). When you hold a stock for a long term you really are investing in the company and saying ""this company will grow"". Short term investing is mostly speculation and speculation causes securities to be incorrectly valued. So when a retail investor puts money into something like Facebook for example they can easily be burned by speculation whether its to the upside or downside. If the goal is to get me to invest my money, then why not give apply   capital gains tax to my savings account at my local bank? Or a CD   account? I believe your gains on these accounts are taxed... Not sure at what rate. If the goal is to help the overall health of business, how does it do   that? During an IPO, the business certainly raises money, but after   that I'm just buying and selling shares with other private   shareholders. Why does the government give me an incentive to do this   (and then hold onto it for at least a year)? There are many reasons why a company cares about its market price: A companies market cap is calculated by price * shares outstanding. A market cap is basically what the market is saying your company is worth. A company can offer more shares or sell shares they currently hold in order to raise even more capital. A company can offer shares instead of cash when buying out another company. It can pay for many things with shares. Many executives and top level employees are payed with stock options, so they defiantly want to see there price higher. these are some basic reasons but there are more and they can be more complex." "This is the best tl;dr I could make, [original](https://www.nytimes.com/2017/10/14/upshot/why-surge-prices-make-us-so-mad-what-springsteen-home-depot-and-a-nobel-winner-know.html) reduced by 97%. (I'm a bot) ***** &gt; If artists did raise prices sharply, there&amp;#039;s a risk they would need to discount prices later to fill up the arena.  &gt; The Illinois program has included email and text alerts to tell people when surge pricing is in effect, and some customers are using technology involving smart thermostats so that their temperature setting adjusts automatically.  &gt; There is no surge pricing at Home Depot stores after a disaster, in both a longstanding corporate policy and a matter of law in many states.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/76vlap/why_surge_prices_make_us_so_mad_what_springsteen/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~229629 tl;drs so far."") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **price**^#1 **people**^#2 **more**^#3 **ticket**^#4 **energy**^#5" "As JoeTaxpayer says, there's a lot you can do with just the stock price. Exploring that a bit: Stock prices are a combination of market sentiment and company fundamentals. Options are just a layer on top of that. As such, options are mostly formulaic, which is why you have a hard time finding historical option data -- it's just not that ""interesting"", technically. ""Mostly"" because there are known issues with the assumptions the Black-Scholes formula makes. It's pretty good, and importantly, the market relies on it to determine fair option pricing. Option prices are determined by: Relationship of stock price to strike. Both distance and ""moneyness"". Time to expiration. Dividends. Since dividend payments reduce the intrinsic value of a company, the prospect of dividend payments during the life of a call option depresses the price of the option, as all else equal, without the payments, the stock would be more likely to end up in the money. Reverse the logic for puts. Volatility. Interest rates. But this effect is so tiny, it's safe to ignore. #4, Volatility, is the biggie. Everything else is known. That's why option trading is often considered ""volatility trading"". There are many ways to skin this cat, but the result is that by using quoted historical values for the stock price, and the dividend payments, and if you like, interest rates, you can very closely determine what the price of the option would have been. ""Very closely"" depending on your volatility assumption. You could calculate then-historical volatility for each time period, by figuring the average price swing (in either direction) for say the past year (year before the date in question, so you'd do this each day, walking forward). Read up on it, and try various volatility approaches, and see if your results are within a reasonable range. Re the Black-Scholes formula,  There's a free spreadsheet downloadable from http://optiontradingtips.com. You might find it useful to grab the concept for coding it up yourself. It's VBA, but you can certainly use that info to translate in your language of choice. Or, if you prefer to read Perl, CPAN has a good module, with full source, of course. I find this approach easier than reading a calculus formula, but I'm a better developer than math-geek :)" Many of the Bitcoin exchanges mimic stock exchanges, though they're much more rudimentary offering only simple buy/sell/cancel orders.  It's fairly normal for retail stock brokerage accounts to allow other sorts of more complex orders, where once a certain criteria is met, (the price falls below some $ threshold, or has a movement greater than some %) then your order is executed.  The space between the current buy order and the current sell order is the bid/ask spread, it's not really about timing.  Person X will buy at $100, person Y will sell at $102.  If both had a price set at $101, they would just transact.  Both parties think they can do a little bit better than the current offer.  The width of the bid/ask spread is not universal by any means.  The current highest buy order and the current lowest sell order, are both the current price.  The current quoted market price is generally the price of the last transaction, whether it's buy or sell. Stock prices are indeed proportional to supply and demand. The greater the demand for a stock, the greater the price. If they are, would this mean that stock prices completely depend on HOW the public FEELS/THINKS about the stock instead of what it is actually worth? This is a question people have argued for decades. Literature in behavioral finance suggests that investors are not rational and thus markets are subject to wild fluctuation based on investor sentiment. The efficient market theory (EMT) argues that the stock market is efficient and that a stock's price is an accurate reflection of its underlying or intrinsic value. This philosophy took birth with Harry Markovitz's efficient frontier, and Eugene Fama is generally seen as the champion of EMT in the 1960's and onward.  Most investors today would agree that the markets are not perfectly efficient, and that a stock's price does not always reflect its value. The renowned professor Benjamin Graham once wrote: In the short run, the market is a voting machine but in the long run it is a weighing machine. This suggests that prices in the short term are mainly influenced by how people feel about the stock, while in the long run the price reflects what it's actually worth. For example, people are really big fans of tech stocks right now, which suggests why LinkedIn (stock: LNKD) has such a high share price despite its modest earnings (relative to valuation). People feel really good about it, and the price might sustain if LinkedIn becomes more and more profitable, but it's also possible that their results won't be absolutely stellar, so the stock price will fall until it reflects the company's fundamentals. (yes, this should probably be a comment, not an answer ... but it's a bit long). I don't know what the laws are specifically about this, but my grandfather used to be on the board of a company that he helped to found ... and back in the 1980s, there was a period when the stock price suddenly quadrupled One of the officers in the company, knowing that the stock was over-valued, sold around a third of his shares ... and he got investigated for insider trading.  I don't recall if he was ever charged with anything, but there were some false rumors spreading about the company at the time (one was that they had something that you could sprinkle on meat to reduce the cholesterol).  I don't know where the rumors came from, but I've always assumed it was some sort of pump-and-dump stock manipulation, as this was decades before they were on the S&P 500 small cap. After that, the company had a policy where officers had to announce they were selling stock, and that it wouldn't execute for some time (1? 2 weeks? something like that).  I don't know if that was the SEC's doing, or something that the company came up with on their own. A stock's price does not move in a completely continuous fashion.  It moves in discrete steps depending on who is buying/selling at given prices. I'm guessing that by opening bell the price for buying/selling a particular stock has changed based on information obtained overnight. A company's stock closes at $40.  Overnight, news breaks that the company's top selling product has a massive defect.  The next morning the market opens.  Are there any buyers of the stock at $40?  Probably not.  The first trade of the stock takes place at $30 and is thus, not the same as the previous day's close. It's not stopped. Crossing a moving average is considered a signal to buy or sell. Yahoo stock charts offer the ability to add moving averages to the charts, and you can observe all stocks cross the line regularly.   As a contrast to Victor's charts, you can see that Apple, over the last two years, has traded above and below the 50 day MA. A believer in technical analysis using MA will observe a buy signal in Dec '11 just under $400, with a sell in mid-$500s in May. Moving averages are a form of following the trend, and work well when either trend is strong. It's when the stock is too close to the line that's it's tough to call whether it's time to be in or out.