Correct me if I’m wrong!
I understand that a stock is an investment into a company, so you own a small part of the company and can get a part of the profits (dividends) and sometimes make decisions for the company.
The price of a stock is determined purely by supply and demand, the displayed price is actually the price at which the latest stock was sold. So it depends entirely on how much people are willing to buy/sell the stock for.
This is where I get confused. What gives a stock its value? Isn’t it purely an instrument to buy and sell (for profit) then? What distinguishes a X stock from a Y stock for example? Why do people want to sell the stock (for less) when the company is doing badly, if the price is not determined by said company? For example if X was doing insanely bad, but people still wanted to buy the stock thus making the price rise even more, why would that be ‘wrong’?
Thanks in advance!
In: Economics
The short answer is it’s fugazi it’s made up.
The medium answer is shares each represent a percent ownership in the company. The collective population of investors decide what they believe the value is. It should have a basis in reality that considers revenue, real and intellectual property owned by the company, and other measurable factors. But it’s a gamble, and people place bets all day every day (they the market is open).
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