3 Factors Make Stock Prices Go Up

Last updated

March 16, 2022
11:00 am

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Understand the 3 important factors that move stocks price up over long period of time allow investors to have more confidence on investing in stocks or equities. Investors no longer worry short term stock price fluctuation and in fact short term market fall create opportunities to invest for batter return in long term.

Before we go into the 3 important factors that makes stock prices move up in long run, let start with some fundamental of stock market and how do we make money from stocks.

What Is Stock

A stock is a public listed company. When you invest into the public listed company, that company makes money, eventually you also make money. When you invested in quality stocks, they not only continue to make money every year. A quality stock will make more money that then they make previous year. Therefore it is important to choose a quality stocks to invest.

How Do We Make Money From Stock

The public listed company that generate profits, it can share out it profit through dividends.

Alternative if the company do not pay out dividend, it can make good use of those profit to reinvest into the business like buying new machine, expand additional plant, and invest into research and development for improving the product and many more so that it makes more money in the future. These will increase the value of the company and eventually the stock price will appreciate.

How Does Stock Price Keep Going Up

The logic behind of stock price keep on going up in long term is the public listed company is keep on making more money year by year. If the company make the amount of money every year, the stock price will not goes up. It will stay the same stock price as we invested earlier.

Generally speaking, a good quality company will continue to increase the profit every year. They may be slowing down in short period of time due to some market challenges. But over long term the good quality company should continue to increase the profit. That’s why their stock price will also increase.

3 Factors Company Can Continue Making More Profit

There are three major reasons on why good quality and well-managed company continue to have better profit year by year.

1) Inflation

All of us probably will agree that cost of foods, houses, transportation, health care, education and almost everything will continue to rise every year and it will probably continue.

Generally speaking, employee salary will increase every year. If a company do not consistently increase the employee salary, chances are the company will have high staff turnover rate. Therefore it is common a company will have to increase employee salaries.

If a company has to pay higher salary year by year, it has to make higher profit year by year too. If not the company will run into losses eventually.

The company has to transfer the higher cost to the consumer so that they can sustain in long term. This is the reason inflation is keep on going up.

2) Population

Base on the Wikipedia data, the world population is still growing. More population means more demand on foods, health care, education, and many more. More demands mean more profit to the company. More profit to the company means the value of the company will increase. That also means that the stock price will eventually increase.

3) Improve Productivity

With the advance of internet and technology as well as human knowledge also keep on improving. All these will contribute to the efficiency of the company output. Improving the efficiency also mean improve the productivity of the company. Improving of the productivity means improving profit margin. This is also one of the reason why well managed company can continue to make more profit and money year by year.

Conclusion

Understanding this fundamental will help us to build up the confidence on why stocks prices move up over long term. We will not worry the short term fluctuation of the stocks as over the long term, it will still be going up. Therefore it is important to invest for long term if you want to allocate your investment into stocks or equities.

Feel free to check out this video and see how the historical stock market react on the crisis.

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