Fluctuating share prices are essentially the heartbeat of stock markets. Every day, stocks worth millions are traded, with sellers and buyers trying to book profits or minimize potential losses. While that is normal, sometimes it makes us wonder what happens if everyone sells their stocks. Is that even possible? To answer such questions, here are some things we need to understand.
Prices will fall – If there’s a heavy rush to sell a particular stock, it is likely that share prices will start to fall. It is simply the situation of too much supply and very little demand. If there are no or very few buyers, it also means that not everyone would be able to liquidate their stocks. If everyone is trying to sell a particular stock, many people won’t be able to sell and end up with what can be described as dead or worthless stocks. Unless of course the selling frenzy was based on some rumor, which is very much possible in today’s age of fake news being circulated on social media.
Price may also rise – The opposite can also be true, in that, the stock price may rise when everyone is trying to sell a particular stock. This will happen only when there is someone out there who is thinking differently and willing to take the risk. Even leading investor Warren Buffett had said that “buy when everyone is selling.” In such a situation, smart investors may buy stocks and sell it immediately afterwards to book profits. If there’s a tsunami of sellers, prices can still rise if there are investors willing to buy that particular stock.
Who is buying when everyone is selling?
When there’s a rush to sell a particular stock, it will be available in the market at heavily discounted prices. Smart, experienced investors can consider this as an opportunity if they feel that the stock has future potential. People with deep pockets or large fund managers will have the financial resources to accommodate such risks. Panic selling of stocks is usually witnessed among retail investors, which is often taken up as an opportunity by fund management companies.
Stock buyback – Everyone may be able to sell their stocks in case there’s a stock buyback program announced by the company. Stock buyback program could be due to various reasons such as equity value increase, consolidate ownership or improve the financial books.
It is clear from above insights that investors should avoid panic selling their stocks. If there is something fundamentally wrong with the stock, it is likely that there won’t be any buyers. And if you are able to sell, it will be an indication that someone out there is willing to take long term bets on the stock. That you can do yourself and there’s no need to sell your stocks at discounted prices. A bit of patience can help you cope up better in a situation where everyone is trying to sell a particular stock.