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
In theory, if someone bought all stocks, they would own the company. The company has some inherent value (due to the money it makes and assets it owns). The value of stocks should very roughly correspond to the value of company, except, of course, people like to speculate. If people think the company has potential to grow in the future, they may not be willing to sell their stocks at the value it has *now*, because they’d rather wait until it is bigger and more expensive. On the contrary, if people feel like a company is going to do badly, they may be willing to sell their stocks below what they “should” be, so as to find a buyer more easily and get them off their hands before the value drops even lower.
When people get caught in their speculations too much, the value of stocks can get completely out of touch with reality, and that’s how you get bubbles and crashes.
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