Investing for equity gains whether you are in stocks or real estate is the goal of many investors (myself included). The sight of seeing a large increase in any asset class is always a welcome sight to see and I doubt anyone would argue with that! This leads to a simple but often misunderstood question of what drives a market up or down.

The immediate answer from investors is that there are more buyers than sellers or sellers versus buyers.  More buyers indicates higher prices and more sellers leads to a price decline. This popular notion however is completely untrue. For every buyer there is always one seller and vice versa in stocks or real estate. The correspondence is always one to one.

The real answer is the spread between the sales price to list. When the market average has sales prices above list, the trend is upward and when the list price average is below sales, it puts downward pressure on a market. A similar argument can be made for stocks and whether the bid is above or below the asking price of a stock.

The next time someone mentions that buyers are flooding market to drive prices up, just be sure you are armed with these facts and not someone else’s hype of misinformation.

Special thanks to Wall Street Supertrader of the millennium Daniel Turov for illustrating this to me many years ago.