Novice investors often face this situation: they chose a stock, did everything correctly according to the methodology, but the price of the stock began to move in the other direction on the same day or even at the same minute. Most people immediately begin to panic and think that they did something wrong, made a mistake somewhere, etc. As a result, the investor begins to succumb to emotions and may make the mistake of selling good shares at an unreasonably low price.

In order to not get emotional and act wisely and correctly in your investment decisions, you need to understand why stocks fall. Today we will look at the main reasons. Moreover, we will divide them into 2 main classes of reasons:

Reasons not related to the deterioration of the situation in the company are speculative and market reasons.

The reasons associated with the deterioration of the situation in the company are the real reasons.

At the same time, from the point of view of fundamental analysis and the principles of long-term investing, you need to react to what is happening only in the second case, because in this case, either you made a mistake when analyzing the company at the stock selection stage and did not take into account any important factors, or force majeure occurred in the selected company.

In practice, if you did everything correctly when choosing a company and carried out high-quality analytics, found an undervalued company with fundamentally strong indicators and excellent prospects, then in the vast majority of cases, the fall in stock prices will be caused by reasons that have nothing to do with the situation in the company. This means that such movements in the market are either simply market noise, or are caused by events unrelated to the company itself and can simply be waited out.

Factors in stock decline

First, let's look in more detail at the class of reasons that arise as the situation in the company worsens. This is precisely the investor’s field of work when it is necessary to make decisions about further actions regarding these investments.

The Real Reasons for Stock Falls

Here, in turn, we can divide the cause of the fall into two classes:

Reasons related to the deterioration of the company's financial position.

The key role in this case is played by the quality of the fundamental analysis of the company: all its sides - this includes an analysis of the financial position of the company, an analysis of its business, and the identification of key directions for the development and growth of the company. At this stage, it is important to penetrate as deeply as possible into the essence of the company’s business, draw the right conclusions and correctly extrapolate them to the company’s future financial performance. If you did everything correctly here, this is already more than 90% of the success of this investment.

How to recognize these risks.

Of course, with a superficial analysis or analysis with insufficient knowledge, one can draw erroneous conclusions regarding the company's prospects. You can recognize bad processes in a company by the negative dynamics of its financial statements. To do this, it is necessary to periodically monitor the company’s financial statements and important decisions of the meeting of shareholders and the company’s management, which are also published on the website in the section for investors. You can also assess the risks of negative dynamics in a company based on an analysis of its reporting and business analysis. That is why a prepared investor will cross off this company from his investment shortlist in advance, at the stage of detailed analysis.

Most The best way protection against such risks is constant improvement of qualifications and deepening of one’s knowledge. The second way is diversification. If you have a basic understanding of investing, it is possible to make erroneous conclusions, but the risk that you will be wrong in all of your investment decisions is minimal. Incorrect conclusions for one company will be offset by correct conclusions and positive results for other investments.

Reasons related to force majeure.

Absolutely any company has this risk. At any plant, at any enterprise, something can explode, break down, work can be interfered with by natural and man-made disasters, various unpredictable conflict situations can arise, etc. At the same time, we consider situations where serious or irreparable damage is actually caused to the business and financial position of the company. There are and will appear in the future such examples on the market, but in fairness it must be said that there are actually not that many such examples.

Vivid examples of force majeure situations are the case of the Raspadskaya company, when a powerful explosion occurred at the company’s main mine.

The current most striking example of force majeure with a company is the situation with AFK Sistema. The Rosneft company filed a claim against AFK Sistema for an amount of about 107 billion rubles, which was equal to almost half of the company's capitalization; as a result, the shares fell by 40%.




How to recognize these risks.

That's why they are force majeure circumstances, because they are in no way predictable and not even the most in-depth analysis will help to identify them in advance. But it is possible to assess the degree of possible occurrence of certain risk cases in various companies and industries. And this can be taken into account when forming your investment portfolio. Thus, there are obviously certain industry risks of companies, the likelihood of which is higher due to the specifics of the business. This is, for example, the same coal industry with fairly high production risks. This is a transport industry where unpredictable crashes and disasters involving company vehicles are possible. In the financial sector, microfinance organizations and insurance companies are themselves very risky businesses. Also, for example, companies can be divided into companies with state participation and private companies. This division in itself already gives an understanding that state-owned companies have less risk of conflict situations with government structures. Of course, all this does not eliminate the risk of force majeure situations, but you can have an idea of ​​the likelihood of its occurrence.

How to protect yourself from these risks.

The risk of force majeure is actually low probability. Therefore the most effective method neutralizing these risks is diversification. At the same time, the wider the diversification of your investment portfolio, the better, the more effectively the risk of force majeure situations is reduced. At the same time, knowledge about potentially riskier industries can also be used in this direction, reducing in advance the share of potentially riskier assets in your investment portfolio.

Market reasons for falling stocks

These reasons have nothing to do with the real deterioration of the situation in the company, but are related to the dynamics stock market in general or the macroeconomic situation in the country, in the region or in the world as a whole.

Such reasons for the fall of stocks are also called systematic (or systemic) risks. These are risks that affect the entire market as a whole, that is, globally, all stocks without exception. As a rule, these are crisis phenomena in the world economy, various global geopolitical conflicts that could potentially affect the world economy or the economy of a large region. These are natural global cyclical processes in the world economy associated with various economic cycles. Production cycles, technological cycles, credit cycles, etc. Any cyclical process is characterized by both a lower phase of undervaluation and an upper phase of overheating (or a financial bubble). In this case, the upper phase economic cycle and will pose a systematic risk to all markets.

One of the most striking examples of global systematic risk is the 2008 global financial crisis. Global risks affect most assets when everything falls almost everywhere in the world. This has affected all equity markets in the world, both developed and developing.

S&P 500 Index

How to recognize these risks.

Of course, systematic risks can also be of the nature of global force majeure circumstances, but in most cases they are visible to professional investors who monitor the dynamics of macroeconomic indicators.

If we take a closer look at the macroeconomic indicator, which shows the ratio of the capitalization of all markets to global GDP, we will see that all major and global bearish trends in the stock market over the past 30 years were preceded by several years of significant overheating of the stock market.

How to protect yourself from these risks.

Systematic market risks relating to individual countries or industries are mitigated through currency diversification of the portfolio and the compilation of cross-country portfolios. But the most effective protection against such risk, and even against global systematic risk, is maintaining a balance of risky and risk-free assets in the investment portfolio. Risky assets are certainly subject to its influence, and risk-free assets are fixed income instruments - highly reliable bonds. With their profitability, they can partially or completely neutralize the impact of global risk. At the same time, the balance of assets in an investment portfolio is not some kind of fixed ratio; it must be managed depending on the stage of the market and the economic cycle. This is precisely what allows professional investors to approach the turn of crisis events with the most protective investment portfolios and aggressively build up positions from very cheap risky assets during the post-crisis recovery phase of markets and the economy.

Speculative reasons for falling stocks

This class of reasons also has nothing to do with the real state of affairs in the company, but moreover, these reasons also have nothing to do with the real economy. This is the so-called market noise. This is something that investors deal with all the time and something that is very intimidating for new investors.

The reasons for the existence of market noise lie in the very nature of the modern stock market, or more precisely in the structure of its participants. In order to fully understand the nature of this phenomenon and take it for granted, you need to answer one key question for yourself: who will sell you a good, undervalued and promising share cheaply enough? We conduct analysis, see such securities and can buy them almost every day. They are sold to us by those market participants who focus on completely different things, look in a completely different direction and buy with completely different investment horizons. The number of market participants is extremely diverse, these include classic long-term investors, these are large institutional players such as banks and investment funds, these are speculators of completely different investment horizons, from a few seconds to several months, and of course soulless robots - trading algorithms. It is the layer of speculative market players that gives us the opportunity to buy good shares from an investment point of view cheaply, since they sell them to us based on completely different reasons: someone has a deadline for selling, someone is playing against the market, someone is hedging others risks of this sale, and someone bought this stock 10 seconds ago with the goal of now selling and making a profit of a couple of points. The downside of this phenomenon is that speculators are actively moving the market in completely different chaotic directions and sometimes quite significantly.

How to recognize these risks.

In liquid stocks, market noise is always present. On any stock cycle and under any circumstances. Market noise is also quite multifaceted; it is created by speculative market players who also focus on completely different phenomena and events. These could be rumors, fears and concerns regarding both companies and the economy as a whole, natural outflows and flows of capital, forced closure of high-risk speculators by brokers and, of course, technical corrections. When a critical mass of participants accumulates, which has received its certain rate of profit and wants to fix it, no matter what. As a result, short-term speculative players join the wave of technical sales and a technical correction develops. All these events and facts have different time intervals of influence, but as a rule, they are all short-term. Therefore, for a long-term investor focusing on fundamentals, they all form market noise.

How to protect yourself from these risks.

Professional investors don't even try to do this; instead, they simply use market noise to their advantage. Since market noise is formed by many different random events and different reactions of players, it can be given a statistical expression. Or in other words, market noise can be measured using the statistical indicator of standard deviation or standard deviation over a certain period.

To do this, let's look at an illustrative example. During 2016, Alrosa demonstrated good financial reporting dynamics and was undervalued from a fundamental point of view. Investors showed interest in the shares of this company, but despite all the attractiveness of Alrosa's shares, the company's shares grew in a sawtooth curve. The growth was replaced by local falls and technical corrections.

The average deviation from the central trend (also called standard deviation) for this period was 12.93 rubles or 14.05% of the current exchange rate. These values ​​tell us that, in a random order, the company's shares on average can deviate by 14% from their average price.

Visually this can be represented as follows.

Accordingly, an investor simply needs to understand that if a company’s stock quotes decline for no apparent reason relative to the financial and operational performance of the company itself, without facts of force majeure in the company and not against the backdrop of an overheated stock market, then these are natural, natural movements of the stock and such corrections only improve the investment entry point into the stock, allowing you to buy undervalued and promising shares of the company at a price below their average value. That is, at this point the likelihood of their further decline is significantly less, and due to the decline that has already occurred, a certain increase appears in the potential profitability from the growth of shares in the future.

Conclusions.

We looked at various reasons that can cause stock prices to decline. For most of these reasons, there are effective tools to combat them. Therefore, in conclusion, we can summarize what an investor should have and what needs to be done for effective investment.

There are 3 key factors here:

1. Competence. It is necessary to have mandatory knowledge of financial and investment analysis in order to correctly recognize and anticipate truly negative trends within the company. And vice versa, in order to correctly identify the positive dynamics of the company’s development.

2. Basic rules of investment. It is necessary to properly balance the investment portfolio and carry out its effective diversification in order to minimize the risks that can be combated with the help of this instrument.

3. Psychological stability, correct understanding of the current situation, adequacy of expectations. It is necessary to learn to pay attention only to changes in those factors that influenced the adoption of a positive investment decision and to filter out events that do not have a direct impact on the real results and valuation of the company.

It is also necessary to understand that investments are long-term processes that often require endurance, patience and psychological stability from the investor. To illustrate this, let's take an example from the book by the famous fund manager Nasim Taleb, Fooled by Randomness. It provides an example of modeling an investment portfolio with an expected return of 15% per annum and an average deviation of results of 10%. The purpose of the simulation was to show how market noise can interfere with portfolio development.

As a result, if you do everything correctly and work with risks, then over the medium and long term, portfolio investment tends to the average return profile included in the portfolio. At short-term intervals, market noise and random factors interfere with quotes, and this is an absolutely natural process.

It follows from this that it is necessary to give oneself a true account of the expected result in the future and correctly perceive the investment horizons of the portfolio.

It is important to understand that smart portfolio investing is a process where meaningful actions lead to positive results. Therefore, the key factor for successful investments out of all of the above is knowledge. Unlike, for example, Forex, PAMM accounts and other high-risk ways of earning money, where any attempts to predict profitability and quotes are rather shamanism and flirting with fortune.

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Profitable investments for you!

Good day, my dear reader!

We have already talked to you about what a promotion is. For many people, calculating when to buy shares is not a big problem, but selling them is much more difficult.

Here are seven rules that you can follow to close your positions with minimal losses.

Rule 1. The stock falls by 7-8%.

The most important rule: you need to “dump” shares that have fallen by 7-8% from the purchase price. Closing positions with minimal losses helps you preserve capital and protects you from large losses. Let's say we have a portfolio of stocks.

Here you can clearly see that selling shares with losses of no more than 8% helps to have a good income, despite the fact that 5 out of 7 shares were unprofitable.

For individual investors, closing positions with minimal losses is the golden rule.

Even in a rising market, investors must remember that not every breakout ends successfully. Some stocks rise in the late stages of a breakout, but can turn around and fall quickly. Similar behavior - one of the main sell signals. Although other stocks may form a “cup” or “double bottom” pattern.

Whatever the reason, close your positions first and ask questions later .

One of the necessary conditions for success in the stock market is closing unprofitable positions with small losses, as well as maintaining profitable positions at their maximum.

Closing out losing positions in every stock with poor performance is the best defense against companies that misinform, deceive, or overestimate their prospects and future earnings. If a company goes bankrupt, chances are high that your shares will be worth pennies. As one of millions of investors, you will not be able to influence the legal process.

Institutional investors are a different matter. They can use their connections and financial resources to recover losses through the courts.

When stocks don't meet rosy forecasts, some fund managers sell off companies' shares overnight. This is why growth stocks can fall so much and so quickly. Prompt closing of unprofitable positions prevents losses from growing to 15, 25, 40 or more percent.

Rule 2: New highs on low volume.

Trading volume is a great way to determine how much a stock's price is actually rising or falling. The more shares purchased, the greater the demand. However, when a stock makes a new price high on lower than normal volume, it suggests demand is waning and the stock may turn around.

New price highs with weak volume are an early signal to sell.

Most investors want the stocks they own to grow and continue to set new price highs. However, if the rally occurs on low volume, you should be wary.

Stock setting new price highs at high volume, indicates that investment funds and other serious players are likely to snap up these shares. And since these institutional investors make up about three-quarters of the market volume, you want to be on the same page with them.

However, stocks rising to new heights at low volume, indicate a loss of interest from “big money”. Institutional investors, on the other hand, may start selling, which could lead to a sharp decline.

This does not mean that you should close your positions as soon as the price reaches new highs on low volume, especially on early stages movement following the recent base break. But if the trend continues, you will most likely want to close at least part of the position and watch for other sell signals to emerge.

Rule 3: The stock price is going too high too fast.

Some stocks, especially the most successful ones, have a habit of ending their rise in price tragically. They soar upward like never before, then collapse sharply. This “climactic run” occurs when, after an extended rally, a stock soars 25 to 50 percent or more in just one to three weeks on rising volume.

Many promotions large companies end their growth with a climactic burst.

A situation where the stock price rises too high too quickly does not seem to be a problem. However, if the stock shoots even higher in a short period of time after a significant increase following the breakout, then it may soon reach its upper limit.

Leading stocks often take off “at the speed of light,” a situation called “climax” or “roof breaking.” Excited investors are pushing the stock price to the boiling point. A stock often ends its climactic run with its highest one-day profit level since the breakout. Selling during this period will maximize your profits.

Why wouldn't you want to continue holding the position? If a stock moves up too much, too quickly, it is likely headed for a sharp, often rapid, decline. And if a company's fundamentals slow or begin to decline, the stock may never rise to its peak value again.

If the stock price has already risen strongly since its breakout, what are the signs of a climactic rally? Watch for it to rise 25 to 50 percent or more in one to three weeks on increasing volume. If you see that the opening occurred well above the previous close (exhaustion gap) during this period, then the stock may already be reaching its high.

Rule 4: The two-hundred-day moving average is trending downward.

Using many different graphics programs on the Internet, you can create average price shares for different periods. The two-hundred-day moving average has become one of the types of comparative indicators as an indicator of trend over a long period of time. Historical research shows that stocks that move below this line are likely to continue moving lower.

Take profits when the two-hundred-day moving average is moving downward.

If you own a stock that has been trending upward for a long time, you still need to decide when to sell. This is difficult to do without using a graph. In such cases, the two-hundred-day moving average not only helps to calculate where the support line is, but can also serve as a timely signal to sell.

The stock chart, crossing its fifty-day moving average, gives a sell signal. The stock could bounce back from this line if mutual funds and other major market players buy or add shares to positions.

If the price of a stock rises over months and years, then a two-hundred-day moving average, which represents the forty-week value of the behavior, becomes more useful. If a stock is approaching or near the line but is bouncing off it, it is likely that institutional investors still consider the stock an attractive investment.

However, if the two-hundred-day trend line begins to turn lower after an extended rally, start thinking about selling the stock. At this point, demand for shares among major players no longer exceeds supply. When a stock begins to have trouble staying above the line, it is best to lock in at least some of the profits earned.

Rule 5: Industry leaders are starting to feel the pinch.

The state of the industry is best reflected by stocks - industry leaders. Find one or two stocks with the best financial growth and profitability. If the leaders begin to decline, then most likely other stocks in the same industry will also begin to move down.

Leading stocks determine the fate of the sector.

Want to know what the future holds for your stock? Follow the leaders. Leading stocks are a barometer of market health. They also show you how a given industry group behaves. New, high-growth companies will always break out of their base before investors get out of the bear market. If these new companies prosper, Wall Street buys their associates. If they wither, the market will also get rid of competitors' shares like weeds.

Recently the market has produced more weeds than winners. Full of promise, the Dow, Nasdaq and S&P 500 indices, having soared upward, turned in the opposite direction. Stocks that seem to be in stable condition (excellent fundamentals, compelling charts and colorful growth forecasts) crash and collapse.

To avoid such unpleasant surprises, keep a close eye on group leaders. If stocks of leading companies begin to fall, be prepared to dump your shares.

Rule 6: Selling by institutional investors hurts market indexes.

Institutional investors represent a large volume Money that pass through the stock market. It's immediately noticeable when these investors are selling: the major indices are moving lower on huge volumes compared to the previous session. Four, five or more such days of distributions over a period of three or four weeks always signal a market high.

An influx of institutional selling foreshadows a market correction.

Whether you've recently started investing in stocks or have been doing so for decades, make sure you understand the importance of distribution days. A distribution day occurs when one or more major stock indexes fall significantly on greater volume than the previous day. If you notice one or more of these signals over the course of one or more weeks, consider it a sign that the market may change course after a long rally.

Rule 7. Check your watch list

Earnings per share growth is one of the most important indicators in determining whether a stock is doing well. Profit also signals a stock's downward movement. Be especially wary of stocks that have seen earnings per share growth slow significantly for two straight quarters.

A sharp slowdown in earnings per share growth could signal a sell.

Relying only on earnings growth as a timely signal to sell can lead to exiting a position long after the stock has broken. While company earnings are reported every three months, a leader can collapse in just a few weeks or even days. This doesn't mean you should forget about profits once you've bought a stock. In fact, there are times when earnings growth can slow before a stock shows signs of weakness.

Shares of the largest Russian companies are falling in price on stock exchanges around the world after the introduction of new American sanctions. The dollar and euro exchange rates against the ruble have risen to record levels this year.

On April 6, the US Treasury announced it was expanding its designation of Russians "in response to the Russian government's ongoing and increasingly brazen pattern of malicious activities around the world."

The list includes 17 officials, 14 companies and seven Russian businessmen, including the owner of the Renova company Viktor Vekselberg (personal wealth according to Forbes magazine is $12.4 billion) and the Renova company itself, the head of the Surgutneftegaz company Vladimir Bogdanov ( 1.9 billion dollars), Oleg Deripaska (5.1 billion) and his main companies - the parent holding En+, the largest aluminum producer Rusal, the generating company Eurosibenerg, the GAZ group and a number of others.

Companies and individuals included in the sanctions list will have their assets in the United States frozen, and American companies and citizens must cease all commercial relations with them. Any shipments to these individuals or companies from within the United States must be stopped immediately.

Shares of Russian companies subject to sanctions collapsed on all exchanges where they were traded - from Hong Kong and Moscow to London and New York. The leaders of the fall were Oleg Deripaska's companies - Rusal shares fell by 40% on the Hong Kong Stock Exchange and by 46.9% on the Moscow Stock Exchange. En+ securities fell by 38.3% in London, and GAZ JSC securities fell by 7%.

In the first half of the day, the fall in prices for shares of Russian companies became total, capturing companies that were not subject to sanctions: shares of Sberbank fell by 18%, Aeroflot - by 11%, ALROSA - by 7%, and Megafon - by 6.8%. As a result, the Moscow Exchange MICEX index fell by 8%, the RTS index, reflecting dollar prices of shares, by 11.3%.

Analysts note that shares of Russian companies are now being actively sold by foreign investors, who convert rubles received from the sale of securities into foreign currency. As a result, the dollar and euro rates reached their highest values ​​this year: The American currency exchange rate at Moscow Exchange trading increased at 20:07 (Moscow time) to 60.43 rubles, and the euro exchange rate increased to 74.48 rubles.

Prime Minister Dmitry Medvedev instructed the government to develop support measures for companies subject to US sanctions, as well as to develop countermeasures. “As for those of our companies that fell under these same sanctions, we need to consider providing support: this applies to metallurgists, the energy sector, and trade in products of the defense-industrial complex,” he said at a meeting of the Cabinet of Ministers.

It's common to hear on financial news programs about falling stocks or even a stock market crash. Unfortunately, the financial literacy of the average Russian citizen is not at a level that would allow him to understand the full significance of such news and use it as a source of income. However, in practice, such fluctuations in market conditions actually have a significant impact even on those who are far from exchange trading.

By fall we mean a decrease in price. If the price of the shares of one company has fallen, this is not catastrophic, but when the majority of shares, or at least shares in one industry, fall in price, this leads to a fall in indices and, possibly, to a collapse of the entire stock market.

The reasons can be very different:

• problems in a particular company;
• problems in the industry;
• problems in the country's economy;
• slowdown in global economic growth.

Moreover, problems do not have to be global. If you look at the scale of the company, then the reason for the fall in the price of securities may be personnel changes in management positions, fines from government agencies, the failure of projects, or some unfavorable scandals in which the company became involved. Moreover, history knows examples when mere rumors were enough to cause a stock price to fall - someone spread a rumor about the dismissal of the financial director, the rumor was not confirmed, and the shares have already fallen in price.

Important! The political situation also plays an important role. A striking example is what is happening to the Russian stock market in 2018 due to sanctions. The mechanism is as follows: America imposes sanctions against a number of Russian companies. Investors understand that this will limit the activities of these companies, which means they can expect losses or at least a decrease in profits. This means that investing in these companies is no longer so profitable, and investors begin to get rid of shares, thereby provoking a fall in their value.

What threatens the fall of shares

An ordinary person may think that if he does not have investments in securities, then stock market fluctuations do not threaten him. In the short term, it is quite possible that he really will not feel any changes, however, in the long term, the collapse of the market affects the entire economy and every resident of the country.

However, let's look at them in order. The first thing to expect is this is the depreciation of the assets of private investors. Everything is obvious here - Vasya bought 10 shares worth 1,000 rubles, and spent 10,000 on it. But the shares fell in price and now cost 500 rubles. Consequently, Vasya’s investment is now equal to 5,000 rubles, and another 5,000 went nowhere.

The second logical consequence is this is the fluctuation of the ruble exchange rate. Let’s assume that Vasya followed the news and foresaw in advance that a combination of external factors would lead to a collapse of the Russian stock market. Vasya sold his shares, but now he has a certain amount of free cash on hand that he would like to invest profitably. But where, if we are talking about a fall in the entire market, and not a reduction in the price of shares of a single company?

It is logical to assume that Vasya invests in currency. And if there are many such “Vasya”, this will lead to a depreciation of the ruble.

At the firm level, a fall in stock prices leads to reduction in investment inflow and, as a result, forced cost reduction and cost optimization. This will most likely affect the common man in the form of salary reductions, non-payment of bonuses, layoffs, etc.

Important! Even if you work for a company that is not a public company, these changes may still affect you indirectly. For example, you were planning to take out a profitable mortgage through a promotion that the bank is offering until the end of the year, and you have almost saved up for the down payment. And due to the collapse of the stock market and the need to optimize costs, the bank revised the policy of preferential offers and social programs (and this is also a good option for reducing costs). And as a result, the promotion you applied for was completed several months earlier.

How to make money from a falling stock market

With the right approach, an economically savvy person can benefit from any situation, and a stock market decline is no exception. Here you can act in two ways - depending on where the market is located.

The simplest thing is if the market has reached the estimated bottom point, i.e. no further decline is expected. To understand the current market situation, you need to follow the forecasts of experts, for example, Finam. When the market bottoms out, it's time to buy because the stock price will continue to rise.

For example, you have long wanted to invest in Gazprom shares. Of course, these are not cheap securities, but when the market collapses, even they become cheaper. The investor's goal is to buy them at the lowest price before they start to rise again. What he will do later - receive income in the form of dividends or simply sell it, receiving a profit in the form of a speculative difference - is no longer so important.

A more difficult situation is when the “bottom” is not yet in sight. The fall has just begun or is just being predicted by experts. Logic advises selling shares, but what if you don't have any?

This is where the so-called short or short position comes to the rescue. The point is this: you come to the broker and “borrow” from him 500 shares of the Romashka company, which now cost 1,000 rubles per share. Your investment is 500,000 rubles. You sell these shares, wait for the fall, buy the shares at a reduced price (600 rubles per share) and return them to the broker. Your expenses amount to 300,000 rubles. Of course, a certain commission to the broker is deducted from this amount, because... he lent you shares for a reason, but at interest.

Important! A short trade can bring big profits, but it can also result in big losses. The main problem is that when you buy shares, you risk exactly the amount you invested, however, if you sell shares that you didn't actually own, your losses can be unlimited.

Let's return to the example with shares of the Romashka company. Suppose, contrary to forecasts, their value did not fall, but increased, and now they cost 1,500 rubles. a piece. Thus, you will have to buy 500 shares at 1,500 to return them to the broker - that’s 750,000 rubles, plus pay a commission. As a result, you lost much more than you invested - and the scale of losses is difficult to predict, because... the share price can rise almost indefinitely.

Current situation on the Russian stock market

At the beginning of August 2018, details of America’s new sanctions bill were made public, which provides for freezing the assets of seven large Russian banks, including Sberbank, VTB, VEB and several others. This will be accompanied by a ban on conducting operations in the United States. Plus, there is a sanctioned weakening of the ruble - the euro has again exceeded the 75 ruble level for the first time in several months.

Thus, we are witnessing one of those phenomena where the foreign policies of individual states directly affect stock markets. Based on the results of trading on August 8, the securities of the largest Russian issuers have already begun to fall, and the few that have risen in price can boast of only a slight increase.

Therefore, if you were planning to profit from the stock market decline, now is the time to act.

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You can make money on stocks both when prices rise and fall. An experienced investor does not care where the exchange rate is heading. The only important thing is that the direction of movement is guessed correctly. And this can be difficult. At least for a newbie.

Why are stocks rising in price?

An increase in stock prices may be caused by:

an increase in the company’s capital and turnover, its profits, and, accordingly, dividends due to shareholders;

good news from the company or industry itself, opening up new development prospects;

favorable economic situation in the country and the world, which encourages investors to invest in shares.

On stock exchange the laws of the market that we are familiar with apply. The higher the demand, the higher the price. Accordingly, price increases are determined solely by the behavior and sentiments of investors. And they, in turn, depend on the actual state of affairs in the company, the industry itself, the securities market, and the global economy.

One investor (or a limited group of investors) can influence the exchange rate. Everyone understands how to collapse quotes: it is enough to “dump” a large number of shares for sale, and this will cause a “snowfall”. But how to increase the price of shares?

This is more difficult. Investors are quicker to succumb to panic than to hype. It can only be caused indirectly: by purchasing a controlling stake, bet on the development and increase the company's turnover, create a good image, and attract other large investors to your side.

You don’t have to look far for examples of growing stocks: the securities of Gazprom, Lukoil, Norilsk Nickel and other Russian companies that supply raw materials abroad performed well. Among American stocks, securities of Facebook, Amazon, Google and other IT projects that were successful in their time showed good growth.

Why are stocks falling in price?

If you know what causes stock prices to rise, you can understand why they fall. The main reason, as in the case of growth, is investor sentiment. And the moods themselves can be caused by both objective and subjective reasons.

Among the objective reasons:

deterioration of affairs in the company;

problems in a particular industry;

problems in the economy of the state where the company operates;

slowdown in global economic growth, which also affects the stock exchange.

What matters is not the actual state of affairs, but what exactly investors know and how exactly they feel about it. In some cases, quotes are rising, despite far from rosy prospects. In others, they fall without any objective reason.

It is curious that even “fake” news can lead to a depreciation. This, for example, happened with shares of Vinci SA, which fell by 20% due to the publication of a press release about the dismissal of the financial director. The press release turned out to be false, but shareholders will have to come to their senses for a long time.

Shares can fall as a result of a cunning game by large investors, competitors or criminals, and because of a general panic, and against the backdrop of a falling stock market or problems in the company. Therefore, there is no need to rush to “throw off” securities.

P.S. How do you make money from falling stock prices?