As I understand it, when people buy a share of stock, the price goes up. When people sell it, the price goes down. So what does this have to do with the company itself that this stock represents? For example, if a bunch of people wanted to make Apple’s stock price go down, they could just agree to sell their shares. So what does the actual stock price have to do with the company?
In: 5
So companies can actually raise capital by selling shares. The whole actual purpose is to raise capital quickly or in a pinch. Perhaps more than any individual investor or bank is willing to personally risk.
So how do you convince thousands of random people to give you money? By promising them that their share of the company will be worth more in the future, and they could sell it to another investor in the future to recoup their investment *and then some*.
Now remember that if you own a company and sell shares, *you* own it all before dividing it up and selling it. Typically, you always want to own the most shares (because if you own 51% of a company and a thousand people divided up the rest, clearly you are still the “owner” right?)
This here I think is the piece you are missing. If you started a company most of your “net worth” comes from owning all those shares – you definitely have an interest in that share price being as high as it can. The only way to do that is to run your business well. In fact to raise the price you must have growing profits, attracting new investors willing to buy in.
In summary: the only way to get filthy rich is to own an asset that you can divide into pieces and convince people is valuable. That is to say, create a successful business. If it fails it takes your wealth down with it. That’s how “shares” are tied to the company.
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