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

Yes. As an example, I just pulled up a stock chart for Amazon. If you bought Amazon in 2005 you would have paid ~$2.0 a share (adjusted for stock splits), and if you would have sold in Dec 2012 you would have made ~$12 per share, so more than 5x your money. If you bought then and sold in 2017, that would have been about another 5x gain. If you bought in 17 and still held today, you would have tripled your money. So is Amazon at its peak today, or is there room to grow? Truth is no one knows for sure, so it’s a judgment call. Some people want to hop on the rollercoaster, others are happy to take their gain and move on to the next.

Also, there’s plenty of reasons people sell even if they think a stock could still go up. Estate sales that want to liquidate to pay out inheritances, rich people trying to free up some cash for a major purpose, and portfolio managers who want to maintain a certain balance of stocks and bonds in a given portfolio.