DIY Investor Magazine
/
2015 Issue
40
It’s Sunday morning and as you read about a stock
that is tipped in the business section of the newspaper
does this question cross your mind? ‘If the hundreds
of thousands of people like me reading this section act
on the tip in the morning when the market opens will
it move the share price and if so, can I make a quick
buck?
So who moves share prices? Which journalists,
individuals, institutions etc. Move share prices and how
can I build an investment strategy out of this?
A simplistic view is that share price movements are
dependent on the size of the company, the liquidity
and volumes of the stock, the type of money invested
into that stock, the share structure, the influence or
reach of the person recommending the stock and
your own approach to investing (short term/long term
value/income etc.) and the coverage the stock gets by
research houses, tipsters, analysts and the media. As
an example, small caps are not covered so well by big
research houses and analysts but more so by tipsters,
magazines and newsletters.
Let’s consider two examples of share price movements
- a large cap stock and a small cap stock on AIM.
If a national newspaper says buy Tesco it is unlikely to
change its price significantly unless tens of thousands
of readers buy quickly after the recommendation and
do so heavily.
Why? The market capitalisation of Tesco is roughly
£18 billion with the average number of shares traded
daily around 23 million; at around £2.20 per share
that means about £50 million of stock is traded on an
average day.
WHO MOVES A SHARE PRICE
AND HOW CAN I BENEFIT….?
Given that most small investors trade in bargain sizes
of hundreds or thousands of pounds it would take an
army of smaller investors to read the article, trade the
stock heavily and simultaneously to move the share
price and make a quick turn.
It is therefore unlikely that a single newspapers tip
saying buy Tesco right now would have any significant
impact on its share price; it may be comforting to know
if you are invested that your stock is being tipped and
maybe a few thousand readers would act on the advice
and buy but overall the impact on its share price would
be negligible.
Conversely, if Warren Buffett the world’s most famous
equities investor or a major fund like Neil Woodford’s
CF Woodford Equity Income Fund said ‘buy Tesco’ then
it WILL move the share price.
WHY?
Warren Buffett, Neil Woodford and the funds don’t
deal in thousands of pounds of share purchases like
the majority of us, they deal in tens of, and hundreds of
millions of pounds worth of shares and Buffett deal in
billions; given the amount of shares traded on any one
day it could clearly have a massive impact on its share
price, if Buffett said ‘buy Tesco’.
At one point Buffett’s investment company, Berkshire
Hathaway, was Tesco’s third biggest investor with a
more than 5% stake in the business. Why he made his
fortune-losing mistakes.
Paul Roberts,
CEO and Founder of
Stockomendation looks at the movers and
shakers able to influence share prices
It could clearly have a massive impact on
its share price, if Buffet said ‘buy Tesco’.
