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
Only a few things.
One, at the investor meetings, investors can vote to do a dividend. That means some money comes out of the company bank account, straight to the investors. It gets divided up based on by how many shares they have. I think they’re allowed to divide things that aren’t money, but it sounds like a headache and they don’t actually do it.
Two, they choose the board of directors (by voting). The board of directors chooses the CEO (by voting). The CEO decides everything that happens in the company (by saying it and firing people if they won’t do it). So that’s a big deal.
Three, if the company goes out of business, they get everything that’s left, if anything is left. So that sets a kind of minimum price called the book value. If the shares were below the book value, you could theoretically buy them all, vote to close down the company, take all the money and still have a profit. So they don’t go below that.
There’s no easy calculation for how much a share should be worth. There are many ways to estimate it, but no way to know for sure. If *your guess* is that it’s lower than what the market says, you should sell your shares, and if your guess is higher, you should buy some. If a bunch of people would sell their shares to make the price go down, but you think the price was okay before, and you still think it’s okay (like, you don’t get scared there must be some reason to sell that you don’t know about) then you can buy the shares they’re selling and you got a bargain.
Messing with the price just to mess with the price is illegal. If you’re selling the shares because you think the price is too high and you’d rather have the money than the shares, that’s okay and normal, happens millions of times every day. If you’re selling the shares because you wouldn’t rather have the money than the shares, but you actually want to trick the market by forcing the price to change, eg. so you can buy more shares at the lower price, that’s illegal. That’s a type of fraud called market manipulation.
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