Can you make the Bull Run in the stock market?

Bull refers the optimism, a bull market is the condition of the stock markets where the prices of securities are rising or are expected to rise.

The theory says the economics is the study of allocation of scarce resources, Adam Smith. Later in 1969, the economist Kenneth Boulding said that economics is the study of exchange. In the broader sense, we can use economics interchangeably with exchange. The history of the formal stock exchange dated back to seventeenth century with the establishment of Amsterdam stock exchange in 1602. Jonathan Coffee House, later named as London Stock Exchange was established in 1698. Similarly, New York Stock Exchange, 1792 and Bombay Stock Exchange, 1875 have history of over 200 years and 100 years respectively.  This brief history indicates that stock exchanges have long history and must have been contributed positively in the economy since the stock exchanges are being expanding, innovating, and there are millions of people practicing and seeing their future as career and the trillions worth of assets are being traded each day worldwide.

Nepal stock exchange has the history of more than two decades and it will exist for many years in the future.  As an investor what we have to know is the knowledge, it’s abstract and difficult to quantify but the financial market education and learning new knowledge is important to achieve success in the stock market anywhere in the world.

Lately, in the Nepal Stock Exchange, NEPSE, we can see much positive coverages from the news, bullish commentaries from the analysts, and the positive comments and decisions from the regulators, increasing trading volumes, etc. But, why the upward movement of the benchmark index has paused once again?

Can we make the bull bullish if we want to? Can you and I, or a group of us together make the stock market bullish? The answer is No. Neither we can spark to move the index up nor stop if it goes down. As many of us know, stock market runs on its own principles some believe it has its own cycle. Primarily, the behavior of all individual investors replicate in the stock prices at their aggregate level. Moreover, there are many other quantifiable and unseen moving parts in the economy those have been contribution for the performance of the stock market. Like as any other markets, the basic principle is the rule of demand and supply in the stock exchange. The basics of demand and supply are “demand increase, price increase” and “supply increase, price decrease” and it’s reverse.

Frankly speaking, stock market is not a complex science. It is simple if you would like to take in a simple way. As an investor, one can study the basics of demand and supply theories and then she/he can relate the ideas in the stock market and its price performances. Every day there are changes in the prices of the stocks traded in the market. Why those prices change every day, or within a single day? We need to know those reasons at the first place.

Let us discuss the factors affecting the demand and the supply of the stocks in the stock exchange. Like as many other products and services in the regular market, in the stock exchange too, the changes in the prices of the stocks leads to create the demand and supply quantities available to trade for a the particular trading day. There are no precise and finite/limited reasons that we can list out as the stimulus for the demand and supply side fluctuations. But, here we present the most common areas to look at to have some ideas on the topic:

1. Interest rate decisions by the Central Bank
2. General economic and political news events
3. Scheduled news events of the listed companies
4. Policy decisions from the regulators
5. Decisions from the courts/Judiciary system
6. Company specific merger and acquisition decisions
7. Fake News and Social Media, and
8. Rumors

Bottom line:

There is a saying that suggest make your strategy – KISS. What do you mean by KISS? It is an acronym of the term “Keep your investment strategy simple.” You can think of any matters in a simpler way gives you a solutions as there are always huge power in the simplicity. We are discussing here the money matters; we may keep our money in a simple plan. For instance, if you are young, put 60% of your savings in stocks, 40% in bonds. If you are in high age bracket, you can put 40% in stocks and 60% in bonds. This is a simple example of KISS.

Above, we have discussed about the stock exchanges, demand and supply, and the stock’s price performances. Stock index is considered as the barometer of the economy and the index constitutes the prices of stocks listed in the exchange. There are always reasons to have major price changes in the stock exchanges, we have pointed out some of the major points to be considered by the investment communities to identify the changes in the demand and supply of any particular stock’s number of shares available to trade for a particular period of time to have informed investment decisions of the particular assets class of their choices.

-Sudarshan Kadariya, New York

Comments: Su.kadariya@gmail.com