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?

Question

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?

In: 103

Answer 1

To make it super ELI5, this may be the easiest way to explain it:

When stocks go down in price, it’s because people were willing to sell them at lower and lower prices. Hence the price represents what the stock last sold for.

The buyers would only buy that stock if the prices were low enough to attract their interest. In effect, the market decides the price because the buyers and sellers *are* the market.