Do It Yourself

Ever since the cost of crude oil began growing there has been talk about the price of oil impacting the share market as well as your investments. Now if you think about it logically it does sound like it might make an impact. If it expenses a company more to run the company because oil prices are changing then it sounds like it would impact the share price. Same goes for the idea that individuals will be less or more likely top purchase shares in a company that has something to do with oil. So for example would you invest in a company which sold hose sockets in the event you were in a draught? However is this theory about crude oil price affecting the share market actually real?

  The rational behind this theory is that because numerous companies freight their products, they’ve to spend more to transport the products when price of oil goes up so does the transportation cost. This obviously drives up the price of the product. So if the company wants to keep the cost of their product at the same level, there will be less corporate profit and the share costs lowers after that. Makes sense right? Well maybe not!

  Companies do tend to put up the cost of their services or products in the event the cost of providing it increases. And so the profit margin will stay at approximately the same. Nevertheless in the event the mood of the population, and in particular the stock market investor population, changes concerning the product the industry may endure.  

  Sure global events that impact the price of products such as oil (think about Hurricane Katrina) do impact the investment mood. When there’s an enormous climb or dip individuals and investment companies tend not to change their portfolio around too much. But however when something grows in price over time individuals is less likely to react. We all realize that the cost of oil is growing but it isn’t like when a major event occurs. 

  Straight after an event occurs worry spreads just like wildfire. One person’s fear turns into the fear of an entire investment industry. So nobody buys or trades, but you will find generally plenty of people selling. So there’s no actual understanding of what’s going on. When the environment calms down so does the market. 

  So yes in massive bombs the price of oil will affect the cost of shares. But in a long term growth scenario it will not matter. The cost of oil has almost quadrupled over the last 5 years. But has the price of shares?

  Not really because oil has become an even more valuable commodity people want it even more. And owning shares in an oil company will provide you with that piece of Texas gold which you have been yearning. So the cost of oil shares hasn’t really changed, and if it it has grown. 

  So if we know that market changes will affect the share price because of the mood of individuals buying and selling shares we can forecast the change. In the event you feel a change in mood, it’s nearly certain that there will be change in market. Which means you can sell, but there also is a possibility that the cost will raise once more after too long.