I just don’t understand how it works…when I hold shares in a company and I spend money there, am I technically making a very very small amount of that money back?
ALSO:
what is the simplest way to explain how stock prices increase then?
In: Economics
Yes, in a very small way, but in the grand scheme of things, you personally, no.
Don’t think of stocks as being a sort of profit share.
Stocks only have two values where you’re concerned – when you bought them and when you sell them. You earn money when you sell the stock for a higher price than you bought/acquired them. In fact you can lose money if you sell the stock at a lower price than when you bought them.
Very simplified metaphor:
– say I bought a Rolex for $10,000
– the model I have is getting popular and people want them
– people are willing to pay more for it from people who’ve bought it
– I sell the Rolex for $15,000
– I profit $5,000
So if earning money with stocks is dependent on me selling the stocks, how would spending money at a company affect stock price?
It’s quite simple really:
– people buy stocks to sell them at a higher price
– when customers spent money at a company (buy buying their goods/services), their profits go up
– when profits go up, people who own stocks can tell other people “hey this company is doing well, buy my stock so you can be part of this company, and in fact it’s doing so well that I am selling this stock at a higher price to you, and when the company gets even more profitable, you can sell it at an even higher price to someone else!”
– when customers don’t spend money at a company, their profits go down, and people don’t sell their stock, or “worse”, they sell their stock and lose some money so they can use what remains to buy stocks from a company that would sell for higher prices in the future
But profit is just one thing.
Tim Cook could fart and it could tank Apple’s stock prices. Or increase it. Depends on when and where.
Any activity or event or consequence a company goes through, it impacts how people perceive the company and that affects whether people buy more or less of the product or whether suppliers are eager or unwilling to work with them to maintain production to meet demands, or whether laws and regulations affect how the business is run.
All of those things affect revenue and where revenue goes, typically profit follows.
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