Why Are Stock Prices so Volatile?

Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

“Since David Ricardo’s Principles there has been no book… which has exercised such great influence on the development of economics as Carl Menger’s Grundsätze [Principles].”

–Knut Wicksell

At the invitation of Jan Fijor, a publisher of free-market books in Warsaw, Poland, I just completed writing an introduction to the Polish edition of Carl Menger’s “Grundsätze,” translated “Principles of Economics” in English. I follow in the footsteps of introductions in previous editions by the iconoclastic Chicago economist, Frank Knight, and the Austrian economist Friedrich Hayek.

Carl Menger (1840-1921) was the founder of the Austrian school of economics when he published his “Grundsätze der Volkswirtschaftslehre” in 1871 and ushered in the “marginalist” revolution in economics. This is the idea that prices are determined by a marginal number of buyers and sellers, not the cost of production or labor inputs.

There’s no better example of this marginalist principle than in the stock market. In fact, not surprisingly, Menger discovered this concept when he was a reporter on the Vienna stock exchange. He observed that security prices were determined by a marginal (small) number of buyers and sellers, and therefore had nothing to do with their cost of production, or even book value, as the classical economists had claimed.

For example, last July, Yahoo, a high technology company, missed estimated per-share earnings by one penny, and the stock suddenly fell 8% in a day. That penny-per-share miss was bad enough for shareholders to dump their shares and cause the stock price of Yahoo to plummet. Nearly 80 million shares traded in one day — and yet that represented less than 5% of the outstanding Yahoo shares (1.2 billion).

Exclusive  Be Afraid. Be Very Afraid. Biden’s #1 Threat to Your Wealth and Liberty

Virtually no change took place in the day-to-day activities of the company and its employees. And yet a marginal number of shareholders caused the stock to collapse.

It reminds me of a book I wrote several years ago, “Investing in One Lesson.” The lesson is clear: “Wall Street exaggerates everything: The business of investing is not the same as investing in a business.”

Always remember: all prices of stocks, bonds, gold and real estate are determined by a small number of traders, and they can dramatically alter the price at any time. That’s the marginal principle.

You think Bill Gates is the wealthiest man in the world, worth $80 billion? That figure is based on the market value of the 400 million shares in Microsoft he owns at $32 a share. But what would happen to the price of those shares if Gates decided to unload 50 million shares? I guarantee you the price would plummet as he tried to sell, and word got around. He has to do it prudently and gradually to keep the value high.

Want to know more about Carl Menger and the Austrian way of investing? Get a copy of my new book, “A Viennese Waltz Down Wall Street: Austrian Economics for Investors,” available by calling Eagle Publishing, 1-800/221-7661. To order the 256-page book for only $19, plus $5 for shipping and handling, mention code WALTZ.

You Blew It! Labor Board Outlaws Courtesy

Can you believe this? The government labor board has ruled that BMW’s “courtesy to customers” rule is a violation of employees’ rights (and yes, apparently it’s okay for employees to use profanity and foul language).

Exclusive  Be Afraid. Be Very Afraid. Biden’s #1 Threat to Your Wealth and Liberty

Last year, on Sept. 28, the National Labor Relations Board (NLRB) ruled on Knauz BMW, Chicago BMW dealer, that its employer’s Employee Handbook violates employees’ rights. The handbook states:

Courtesy is the responsibility of every employee. Everyone is expected to be courteous, polite and friendly to our customers, vendors and suppliers, as well as to their fellow employees. No one should be disrespectful or use profanity or any other language which injures the image or reputation of the Dealership.

Thus, the NLRB has now ruled that requiring courtesy is unlawful. The theory is that requiring courtesy is a violation of employees’ rights under section 7 of the National Labor Relations Act (NLRA) which protects “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” According to the NLRB, “Employees would reasonably construe its broad prohibition against disrespectful conduct and language which injures the image or reputation of the Dealership as encompassing Section 7 activity.”

Please click here to read the Knauz BMW Board Decision on Courtesy Requirements.

What is this country coming to?

To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.

Upcoming Appearances

This weekend, C-SPAN BookTV (www.booktv.org) is interviewing more authors who spoke at FreedomFest, including Raj Sisodia, co-author with John Mackey of “Conscious Capitalism.” I am being interviewed at 1 pm Eastern on Sunday, Aug. 11, and at 1 am Eastern Monday morning, Aug. 12, on my new book “A Viennese Waltz Down Wall Street.”

Exclusive  Be Afraid. Be Very Afraid. Biden’s #1 Threat to Your Wealth and Liberty

San Francisco Money Show, Aug. 15-17, San Francisco Marriott Marquis: Next week, join me and all the other Eagle editors (Doug Fabian, Nicholas Vardy and Chris Versace), plus William O’Neil (founder of Investor’s Business Daily), Frank Trotter (Everbank), Matt Schifrin (Forbes), John Bollinger, Chuck Butler and many others. There is no charge for this conference, but you do need to register. Call 1-800-970-4355, and mention code #031733.

share on:

Like This Article?
Now Get Mark's FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE

share on:


Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader


Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor