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?
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I’m surprised no one has mentioned dividends yet, so I’m gonna talk about dividends.
Just voting in the board of directors of a company doesn’t make a stock worth something, for a stock to be worth something there have to be mechanisms that you can profit off this ownership. Dividends were the original such means, whenever the company makes a profit, they would take these profits and distribute them to shareholders on a per share basis, so each share is entitled to a certain chunk of the profit of the company every year and this is what makes the share valuable and worth money.
It doesn’t have to just be profit, it could also be corporate assets, back in the 80s for example there was the idea of a corporate raider, sometimes stock price was at a mismatch of the actual assets of the company, the company would own buildings and stuff that was more than the stock price/market cap, so corporate raiders would buy up the stock, enough to control the company, use their voting power to force the company to liquidate, sell all its assets, and the sale of those assets would net the raiders a profit. By this means corporate assets are a proxy for corporate value as well and matter.
Nowadays companies don’t issue dividends usually, for various tax incentives it’s become a better idea to take that dividend money and reinvest it in the company to grow the company. This pumps the stock price up, because **the stock price is based on what the market thinks the future dividend earning potential of that stock is**, or at least it’s that way in theory in a sane market (*cough* tsla *cough*).
Or they can cheat with stock buybacks where a company buys some of its shares back so less shares are out there next year meaning each share is entitled to a bigger chunk of the profit.
But at the end of the day the point is it comes back to dividends. Even if a company doesn’t issue any.
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