When a stock price goes down, is it that many people have sold and now have that value in cash OR is it that the market just decides the stock price is now worth less collectively?
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The stock price is the last price that shares of stock were sold, representing the value that investors place on the stock.
You are in a room of investors. Everyone is holding different shells. You want the best shells, and so does everyone else, but “best” is opinion. People willing to give us certain shells put them on the table with a price. If people want those shells, they buy them. If not, they stay on the table. The seller lowers the price until someone buys that shell. THAT is the stock price.
If more people value certain shells, and they get snapped up immediately, the next shell of that type put on the table is going to get priced higher. You’re welcome to double the price if you want. It doesn’t matter if no one buys it. Most people are setting their sale price at the highest that they reasonably thing people will pay (if they really want to sell), or at an aspirational price that’s around the top that they think people will pay. They get their money back, plus capital gains (profit), and invest that elsewhere.
Again, the stock price is the value of each share at the last transaction.
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