https://www.nasdaq.com/articles/5-traits-to-chase-in-the-hunt-for-10x-stocks-2021-10-17
Above is a link that describes some of the key features of what makes a 10 bagger stock. Now that I'm managing money, I've been thinking what makes a stock price rise or fall.
1. If a business keeps producing free cashflow that is ever increasing, eventually, the biggest shareholders of the firm will buy up the shares. Demand > Supply = Price rise.
2. If a business with a wide moat, ever increasing free cashflow suffers from a share price drop, eventually, there will be acquirers of the business at bargain prices.
3. The ability to buy back shares, and for acquirers to get funds to buy up companies, depends on macro factors such as interest rates, risk appetite, regulatory factors.
4. Putting aside regulatory factors which is difficult to predict, if interest rate rise, the cost of debt used to fund purchases rise. The hurdle to buy back shares or acquire a business rises. Hence, higher interest rates = lower demand for shares in general.
5. In events such as a recession, stagflation, Covid, war, the "animal spirits" of the stock markets play a part. The "market sentiments" is an important factor. Valuing a company is about estimating its future free cashflow and hence forecasting is affected by sentiments. When confidence suffers, the net present value of a business drops because forecasts become more conservative.
