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?
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what is the simplest way to explain how stock prices increase then?
In: Economics
Next time the company publishes its accounts the revenue will be slightly higher than would otherwise be the case. Assuming they made a profit on the sale the total reported profit will be higher, as will the amount of assets held by the business. As a result the equity (the total assets minus liabilities) will also be higher.
The company may choose to pay out the extra cash as a dividend, in which case you will get a small fraction of the profit from your purchase back into your bank account. They may choose to reinvest the extra cash into improving the business in some way, in which case you hopefully see a return in the form of extra future profit, or they may just hang onto the cash in which case your shares represent ownership of a small fraction of that extra cash.
Now investors who pay attention will look at those published accounts, and see that the company reported more revenue and has more cash on its books (than the hypothetical alternative where you didn’t make the purchase). As a result they may decide that the company is undervalued; that it is a good bet. As a result they may buy shares (or not sell shares they already hold), and so increase demand for the shares and in turn drive up the price.
Of course your individual purchase will be a tiny, negligible number in the accounts of any publicly traded company.
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