Along with the benefits gained, there is also an undeniable risk of stock investing suffering a decline. Many factors can cause stock prices to fall.
Share prices are influenced by internal and external developments. Internal conditions arise from the fundamental conditions of the company itself. Meanwhile, external conditions can be influenced by industrial developments, a country’s economy, government policies, and global conditions.
Factors that cause stock prices to fall
In general, the following factors cause stock prices to fall.
Weak corporate and business fundamentals, such as declining sales and profit margins, are usually the cause of falling stock prices.
A decrease in sales can be caused by several factors such as Examples include losing important customers to competitors, obsolete products, and distribution channel problems.
Profit margins are falling due to falling revenue, rising costs, or a combination of both. Declining sales and margins have also created cash flow concerns, which could raise questions about the company’s ability to fund growth and pay down debt.
Prognosis of the company in the future
Estimated company performance/performance is also one of the things that influence stock price fluctuations. The company’s performance is used as a reference for investors and fundamental analysts when evaluating the company’s shares.
Several factors receive the most attention, such as: For example, the number of cash dividends, the amount of debt, the book value/price to book ratio (PBV), the earnings per share (EPS), and the number of a company’s earnings.
Companies that offer a higher dividend payout ratio (DPR) tend to be favored by investors because they can generate good returns. In practice, the DPR will affect share prices. Additionally, EPS also contributes to changes in stock prices, and high EPS encourages investors to buy those stocks, resulting in a higher stock price.
The level of leverage and PBV can also have a significant impact on stock prices. Companies with high leverage ratios are typically developing companies that are actively seeking financing from investors.
Nevertheless, such companies are usually in demand by many investors. Because if the analysis results are good, the stock will deliver high returns because its market capitalization may increase in the future.
Stock market volatility is often the cause of falling share prices, even for companies with strong business fundamentals. Market downturns can be caused by a variety of reasons: economic changes, profit-taking after heavy protests, and geopolitical events.
For example, the market views the prospect of rising bank rates as negative, as higher rates could lead to higher operating costs, lower margins, and general economic weakness.
Entire industrial sectors can see share prices drop even if just one company in that sector is signaling weaker fundamentals. For example, investors could exit all tech stocks if a large tech company reports lower-than-expected earnings.
Similarly, economic weakness in America, Asia, or Europe can affect stock prices anywhere, as can civil wars and terrorist attacks in areas of global economic importance such as the Middle East.
Corporate restructuring measures can depress stock prices. For example, the share price of companies involved in major acquisitions or mergers may fall due to investor concerns about stock dilution and difficulties in integrating the cultures of the two companies.
The stock price can also fall if a rumored or announced merger doesn’t go ahead because the company hasn’t received shareholder or regulatory approval.
Companies that scale back operations lay off employees and sell assets can also cause stock prices to suffer, at least in the short term, due to perceived financial weakness and operational uncertainty. Changes in management and negative analyst opinions can also lead to falling share prices.
Government policies can also affect stock prices, although the policy is still in the discourse stage and has not yet been implemented. There are many examples of government policies that cause stock price volatility, such as export-import policies, corporate policies, debt policies, foreign investment policies, and so on.
Trader-type stock players tend to be very sensitive to sensitive issues like this to take profit by speculating in day-to-day trading.
Rumors and Market Sentiment
The stock market is very susceptible to manipulative information or market manipulation, news or rumors. It’s just a problem that the source out of thin air could have an impact on the rise or fall in stock prices. For example, a CEO or director of a particular company may make a negative statement. Automatically, the share price of the company in question can suddenly be corrected negatively.
Therefore, analysts often give this factor special consideration before deciding to buy or sell stocks.
Perhaps in this case it is not easy for inexperienced investors to recognize if they do not pay close attention to internal information provided by the company.
Political and economic news can make investors nervous and cause investors to sell their stocks. Of course, this also affects the price decline.
Usually, this happens to novice investors, whose thoughts are only anxious, anxious, worried, the price is falling more and more, so they immediately sell it with emotions. While it is possible, the issuer’s shares being sold have good fundamentals and prospects, allowing the share price to recover when the situation stabilizes.
Emergence of Stock City
The stock trader in question is an investor who has large capital to play stocks. Mostly they come from the corporate circles or the bourgeoisie, who knowingly use the media to their advantage.
The action of stockbrokers in manipulating the market usually does not last long. However, it was enough to shock investors and eventually panic-sell the shares. This will cause stock prices to fall due to selling pressure.
Corporate actions here are all forms of policies set by senior management. Generally in the form of a stock sale or disposal, acquisition, merger or merger, dividend payment, stock split, and rights issue.
When an issuer announces or implements a corporate action, it has a direct impact on its share price. For this reason, investors should frequently check information disclosures on the Indonesian Stock Exchange (IDX) website. In addition, you can also directly visit the company’s official website to immediately carry out other actions such as selling, buying, or holding stocks.
How to deal with falling stock prices
Well, for those of you who are seeing your stock portfolio going down, don’t panic. Below are some ways you can deal with falling stock prices.
View the stock price history
History will repeat itself, this phrase fits very well when investing in stocks. That is, the graph of stock price movements repeated earlier in the future. If the stock price falls, do not rush to sell it as there is a chance the price will rise. Especially if stock prices have peaked in the past.
For example, the resistance point for the ABCD stock price for the last 6 months was Rp. 2,000 and now it has fallen to Rp. 1,600 and is approaching the support point at Rp. 1,500. Before the price touches the support point, the possibility of pumping or rising is very high. If it manages to clear the resistance price, the price action will continue higher where the stock forms a new resistance.
Focus on good fundamental stocks
The drop in stock prices isn’t the end of it all. If you pay attention, this event is a unique opportunity to save profits in the future. You can buy stocks that are falling in price. To find out which stocks have strong fundamentals, you can visit the official website of IDX or the Indonesia Stock Exchange (IDX).
Think about long-term goals
A person decides to invest because they have a clear goal, usually for the long term. For example, to finance children’s education, to build a house, to travel, or to prepare for retirement. If the share price falls drastically, you should act calmly.
Even if you lose to the decline, remember that while there is still a long time to reach financial goals, you should hold on or let go. Later will also bounce back in time.
It is better to monitor stock prices and often read topics related to the sector of the purchased stock. From here you can develop the best investment strategy before finally taking profits.
Avoid panic selling
Panic selling is selling part or all of a stock because of a decline in price to avoid large losses. Panic selling does not prevent losses when double-checked, but rather increases losses. If you could calm down in the face of a downturn, there wouldn’t be big selling.
You won’t be willing to sell stocks just for a small drop below the purchase price. It’s a good idea to review previous prices and then relate them to current economic conditions to avoid making wrong decisions.
Make a cut-loss move
Cutting losses are cutting losses. According to the Financial Services Authority (OJK), cutting losses means trying to avoid major losses by selling shares at a price lower than the purchase price. For stock traders, a cut loss is made if the price of the stock you hold continues to fall.
As far as investors are concerned, a cut loss can be made if the company’s fundamental performance changes.
Allocate lots of funds
If you still have capital, you can add shares back and sell them later if the price is good. Thus, the profits made can be doubled. For example, you are currently buying 100 lots of stock A, the price of which falls to Rp. 99 level. A month later the price rose to Rp130. If you sell them all you can make a profit of Rp. 310,000.
Playing stocks in the capital market is a practical thing and can be done by anyone, including beginners. All you have to do is open a deposit account with a specific bank and then enter the capital according to your budget.
But not always the stock you buy is profitable, you also need to know that several factors can cause stock prices to rise or fall. You should educate yourself about these factors to reduce the risk of small losses.