If a person owns $2B worth of stock in a company that only has $300M cash on hand. And that person decides to sell all their stock. Where does the rest of the money come from? I can’t imagine people continuing to buy shares that are put on the market so the money has to come from someplace.
In: Economics
Company’s total valuation includes more than just cash on hand.
If someone suddenly tried to sell all their shares, you would need to have buyers for all of them, and in parallel the stock price would plummet. Neither of which affects the company’s cash on hand.
> And that person decides to sell all their stock. Where does the rest of the money come from?
The person who buys the stock. If you sell the stock, someone has to purchase it from you. It’s their money paying for it.
Sometimes companies do buybacks of their stock, but that’s less common than simply selling the stock to someone else.
The stock is only worth $2B because someone else is willing to pay $2B in cash to buy those stocks. Trading stocks does not have anything directly to do with the company. It is all between the investors and stock brokers. So the company still keeps their $300M cash on hand as if nothing happens. But someone have to come up with the $2B in cash if they want to buy all the stocks. So they are the source of the cash.
People don’t buy and sell stock to the company, except in certain specific cases. They sell shares in the market to whoever is willing to pay the highest price for them.
You can go buy 100 shares of whatever company right now. You’ll be buying them from somebody who is selling, and his money will come from you.
When you sell stock you don’t sell it to the company. You sell it to whomever wants to buy the stock from you.
> I can’t imagine people continuing to buy shares that are put on the market
That’s like, the entirety of the stock market. The company itself usually isn’t involved in the transaction. If Person A owns the stock, the can sell it to Person B, C, D, etc. B, C, and D are paying for it, not the company. Company itself is usually only involved during the initial public offering (IPO), where the stock is available and sold for the first time. Or during stock buybacks.
Why would people do that? Because stocks equal a portion of ownership. If I own Reddit stocks, it means I literally own a part of Reddit. I, and other stock holders, can vote on what Reddit does as a company. If the company does well and is making tons of money, then my ownership of Reddit becomes more valuable. I can then sell it for a profit.
When investors sell stock, they aren’t selling it to the company, they’re selling it to other investors. Just as when you bought the stock, some other investor sold it to you (unless you bought at the IPO).
outside of the IPO; stocks are traded (bought and sold) between individuals; not the company.
if I sold Nvidia stock; its not nvidia who buys it…..but some other investor or fund manager.
If I sell the stock, the money comes from whoever buys the stock. Not the company.
If no one buys it, I try to sell it at a lower price (aka the stock price is down)
It only comes from the company if *the company itself* is buying the stock, which is referred to as a buyback.
Then whoever bought the stock from me now owns the overvalued stock at their risk.
If I own $2 billion in stock and sell it, that money comes from the buyers. The company itself can be a buyer, but a lot of shares are just traded between people. Cash on hand is separate from the company’s value. The company’s value is determined by how much the company can give its owners, and how long it will take to give it to them. There’s usually more to a company than how much cash they have. Yes, if a company consisted of absolutely nothing except for 1 bank account in the company’s name that had $300M in it, then that company is worth $300M. If that company has that and a money-making asset like a factory then you add the present value of the future profits the factory will yield to the overall value. Another reason why cash on hand is separate from value is because what if a company has $300M in cash on hand but also owes $300M from leasing their assets? Then the value of the cash is negated by the company’s liabilities.
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