When I am buy stock at a lower price point than it was trading a 1 day or week, month or year later, does it mean that somebody during that same time frame is losing the difference?
In: Economics
Nope, for lots of reasons. There’s one reason why that hasn’t been mentioned. Companies can issue new stock.
Let’s say 5 people each own 100 shares each, and those 500 shares constitute 100% of the shares of the company. The 5 shareholders then pay a bank to come in and say how much those shares are worth. The bank says $1. So the company is worth $500 and each owner has a $100 chunk.
Then those 5 people all agree that the company will generate — and then sell — 100 more shares to whomever else wants them. They decide to use a popular public market to sell those shares so they can get a good price. They “go public.”
Those shares are popular because lots of people think the company is worth more than $500. The new sharesbstart selling for a bit more thwn $1, then, as more are sold, $1.50. By the time the 100th new share is sold, the price is $2. At the end of the “offering” of these 100 shares, each original owner has a chunk worth $200, and most of the people who bought those 100 new shares also benefited from the rising prices (the people who bought for less than $2). Virtually everyone wins, as long as they don’t all turn around and try selling these suddenly-more-valuable shares at the same time.
It’s way more complicated than that, eg a bank needs to act as the seller of those 100 shares, there’s a lot of money spent and due diligence researched and drama that happens, but basically it’s not uncommon for everyone to win, and for a long ass time, too.
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