How Supply and Demand Drives Stock Prices | Ken Fisher | Fisher Investments UK [2019]

Anybody who has taken an Economics 101 class can understand how supply and demand affects the price of goods. However, capital markets are non-linear, meaning that stocks do not react to supply and demand the same way as traditional goods and services do. Ken Fisher explains how this complicated dynamic works in this video.
Demand represents the purchaser’s eagerness to own, meaning in the short term, stocks can move based on investors’ emotion and sentiment any which way, depending on their feeling towards the stock market at that time. When you compare supply to demand for capital markets, supply is much more powerful and linked to economics, because if it’s in a company’s best interest they will shrink their supply to increase their earnings per share. Conversely, they’ll issue new stock if it’s an effective way to raise capital. Since the process of creating and destroying stock supply is slow, supply-based changes take longer to impact prices, but prices can move much more in the long term based on supply.
As a famous investor Benjamin Graham once stated, “in short term, stocks are a voting machine, and in the long term, they are a weighing machine.” In other words, in the short term stocks move on demand and sentiment, and in the long term stocks move on supply.

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