INFLUENCES THAT GOVERN STOCK PRICES 1. How far is speculation scientific?—The future is always uncertain, but in so far as future movement of stock market prices can be foreseen, speculation is scientific. No system has ever been devised to fore tell all fluctuations in prices, and the fate of the stock speculator who believes his method to be infallible is likely to prove like that of the gambler at Monte Carlo who endeavors by means of elaborate calculations to work out a system of beating the bank.
A moment's reflection will show that speculation cannot, on account of its very nature, be reduced to an exact science. At the end of the preceding chapter it was pointed out that as knowledge in any particular field becomes more precise, exact and complete, spec ulation tends to destroy itself. The same idea may be expressed in a more colloquial manner as follows: If speculation could be reduced to an exact science every body would be right and there would be nobody left to trade with. In other words, if speculation could be reduced to an exact science—and many fakirs and charlatans pretend that it can there would be no risks or uncertainties, and therefore no speculation.
In the first chapter strong emphasis was laid on the fact that stock exchanges serve the purpose of corn mercial barometers. They anticipate, or "discount" the swings of trade, the ebb and flow of prosperity. Now if the stock market is a barometer, how can any one pretend to foretell its movements? To draw up a rule to cover all the possible movements of stocks is like finding an instrument that will predict the move ments of a barometer.
Countless forces play upon any large market. Each share of stock bought or sold affects the whole, and who can say why a particular share is bought or sold? Each loaf of bread eaten affects the price of wheat. These considerations are what a great econo mist has called "the imperceptibles of commerce." Who can weigh them all? The speculator must make a careful study of a large number of conditions that are only remotely connected with the earning power of any company, in order to be able to understand the fluctuations which occur in the prices of its securities.
It has been aptly said that hardly an event occurs in the world which does not have some effect upon the prices of securities. Nevertheless the effort to fore see the future and make profit by so doing enters more or less into all business activities, and it can be proved that stock prices do not fluctuate so irregularly but that they can be foreseen, provided the speculator has the proper mental equipment and knowledge. Those who do possess this knowledge and equipment are, however, comparatively few.
2. Influences affecting will be no ticed that stocks vary in price not only from year to year, but from month to month, day to day and hour to hour. And it is a matter of common knowledge that stocks which are of the same apparent worth, and which pay the same dividends, differ enormously in price.
The price of a stock at a given time is the result of the interaction of the desires and necessities of buyer and seller, representing demand and supply respect ively. Free bargaining takes place in the open market, and prices move according as these desires and necessities change from time to time. We have already seen that speculation arises largely from fluc tuating property values, and it may be added that fluctuation in the value of property is •the underlying, altho by no means the only cause of price movements of stocks. There are two great groups of influences determining the desires and necessities of buyers and sellers, which will here be considered.
3. Extrinsic influences.—Accidental, speculative, temporary and artificial factors may be called ex trinsic influences. First, there are wars, fires, earth quakes, floods and wrecks on the sea and land. Then there are the artificial influences, including manipula tion, one of the .minor factors. There are also the speculative influences, which are more important. Speculation is itself due to fluctuations in the value of property and the course of the prices of stocks or produce depends to no little extent upon the volume and character of the speculation. This general rela tionship is often referred to in the market as the "technical" conditions, which will now be discussed.