Page 303 - How to Make Money in Stocks Trilogy

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• C HAP T E R •

S = Supply and Demand:

Big Volume Demand at Key Points

The price of almost everything in your daily life is determined by the law of supply
and demand. What you pay for your lettuce, tomatoes, eggs, and beef
depends on how much of each is available and how many people want these
items. Even in former Communist countries, where the difference between
haves and have-nots was theoretically nonexistent, supply and demand held
sway. There, state-owned goods were always in short supply and were often
available only to the privileged class or on the black market to those who
could pay the exorbitant prices.
This basic principle of supply and demand also applies to the stock mar-
ket, where it is more important than the opinions of all the analysts on Wall
Street, no matter what schools they attended, what degrees they earned, or
how high their IQs.

Big or Small Supply of Stock

It’s hard to budge the price of a stock that has 5 billion shares outstanding
because the supply is so large. Producing a rousing rally in these shares
would require a huge volume of buying, or demand. On the other hand, it
takes only a reasonable amount of buying to push up the price of a stock
with 50 million shares outstanding, a relatively smaller supply.
So if you’re choosing between two stocks to buy, one with 5 billion shares
outstanding and the other with 50 million, the smaller one will usually be
the better performer, if other factors are equal. However, since smaller-cap-

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