If people make money in stocks and crypto by buying low and selling high, who is buying the stocks from they are high, and why?

Question

Let’s just say for example, I bought a stock at $10. Then it goes up to $500

I can obviously make a profit, but why would someone buy it at such a high price?

Is it like the person who buys it at $500 is hoping that it will go up to $1000, then the person who buys it at $1000 hopes it will go up to $1500, and so on?

In: Economics

Answer 1

Let’s separate stocks (and not meme stocks) from crypto. Crypto is quite literally greater fool theory incarnate. Meme stocks are just about that.

Stock in actual companies is nothing like crypto and little like meme stocks. You own a fractional share of company. That company sells somethng (goods, services, something) that produces revenue. It it produces more revenue than it has in expenses that is called profit and every share entitles you to fractional entitlement to that profit. The more profit it makes, the more the share is worth. Also, companies have prospects. Maybe they don’t have a product yet, but something very promising is in development (imagine a pharma company in’s phase 3 trials of a very promising treatment). They’re not selling anything yet, but they might just have the next blockbuster – that will boost the value of the stock a lot. Companies also have assets, inventory, factories, raw materials, real estate, etc. all that has value. As a stock holder you own a fractional share of it. If that value goes up, so does your stock value.

Crypto and to a certain extent meme stocks are pure gambling. There’s no actual value. The only reason you might make money is some other fool is willing to pay more that you did. But that’s not based on anything other than that fool thinking some other fool will want to pay more for that than they did. It’s gambling, not investing.