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Bids and Asks – Why you need Asks to make the stock go higher

Issuers are often misguided with their fixation on the bid side of their stock’s market, quite obviously hoping that “propping” their stock price up with bids will make it go higher – or, that investors that buy and hold their stock will help it go higher. This stratagem may work in the very short run, but generally backfires and reverts to the lower price (barring significant good news). By way of analogy, I suggest that investors offering stock for sale is what lets the stock price move up.

If you owned a shoe store and advertise (promote) a potentially hot new sneaker for sale, it would be good for business to actually have a bunch of those shoes in the back room to sell. Happy buyers leaving the store and walking around with the newest design can entice others to line up to buy, to the extent that you don’t need to offer any discounts to sell them, in fact you may be able to maintain a slight premium.

Conversely, if you promote the new shoe and actually don’t have any (or little) in stock, you may get away with doubling the price, selling a couple pairs and leaving most of the lineup of potential buyers empty handed.  Those potential buyers can walk away and not buy if they see the price run away, or drop out of line if they see that they may not even get a pair. These buyers can go somewhere else and get some competing new design that they can actually buy and show off around town.

As for propping up the market with bids – how far do you think you would get if you convinced a line up of buyers for those shoes without having any in stock to sell?

Hoarding the new shoes in an attempt to limit supply and increase their price is also a tactic that tends to eventually back fire. Someday that stockpile of shoes is going to come out for sale, inevitably at the wrong time and all at once like a fire sale when the next new shoe comes out…

In the stock market, each investor (punter) has different entry/exit points according to their own financial strategy or budget. So ideally, not always possible; the early seed shareholders who take more risk early on and don’t mind the early-stage wait, sell some stock (at a profit) as the company makes progress to those that rather pay a higher price with a little less risk. For every buyer, you need a seller at reasonable prices that buyers are willing to pay. At some price point the buyers will stop buying and without buyers, the stock stops moving up.  Junior exploration stocks never drift up, they fall.