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
The people that lose money in stocks.
Not everyone wins. Some stocks go down and never recover, some companies go out of business, some people are just dumb and buy high.
Yea, some people buy high hoping to sell higher. Sometimes this people are right, sometimes they are wrong.
>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?
Yes, exactly. If you are only considering buying it in order to sell at a profit later, then that is what is happening: they think it is going to go even higher.
However, that is not the only reason people buy these things. Stocks have value in and of themselves and some people actually buy crypto to use as a currency.
It kinda works the other way around. It’s worth $500 BECAUSE a lot of people want to buy it. And as others have said, they want to buy it because they believe it will go even higher.
In essence, you have it, yes.
The thing is, people who buy at 500 and are hoping for 1000, might be sitting on a real value of 200, and it may never get to the value they want, or it may continue to drop.
MOST stocks aren’t that volatile however. High volatility is attractive for how much you can make if you are on the right side of your prediction/guess–but dangerous because you can easily lose just as much, if not more.
That is not how people make money in stocks. Stocks represent earnings streams that deliver actual cash either now or in the future. Take that away and they are worthless. Yes, some people trade well and make more than the earnings stream would suggest, but in aggregate that is not (cannot) be true.
Crypto is another matter.
Also, in your example, when you bought at 10 it was probably from someone who bought it at 5 or 1, and are making the profit they had hoped for, thinking that was the right time to sell.
When a stock price has been going up a lot lately, it gains a lot of hype. Hype causes FOMO, FOMO makes people buy high.
Doesn’t even need to be a situation where someone loses – though in the short term it is.
Let’s imagine an imaginary stock that only ever goes up.
You buy this stock for your retirement, and it keeps going up. Eventually you retire.
Now you need to sell that stock to get money to live on. Who are you selling it to?
The young buck early in his career, now saving for his own retirement.
Like catching a moving train. He hops on when you hop off.
Here it is VERY simple:
Do you think a stock will go up? Buy it
Do you think a stock will go down? Sell it
Thats it. Thats all trading is. People just disagree on which way a stock will go, and thats how transactions occur. One side thinks it will rise, the other thinks it will fall. They make a trade.
Easy answer: There are winners and losers. And keep in mind the [Greater Fool Theory](https://en.wikipedia.org/wiki/Greater_fool_theory). Whenever you sell something at a profit, there’s always a bigger fool who’d buy it from you, and this continues until the price is so high that even the biggest fool knows it’s overpriced, and at that point the price goes down again.
Sometimes people buy a security for other reasons than to make a profit directly on the price of that security. It may be a hedge or a spread strategy, where you are making or losing money on the differences between prices of multiple things and you don’t care about whether prices rise or fall, you just care if the difference widens or narrows.
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