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 latter, mostly. It depends, if a stock is speculative (Tesla) then what can happen is people start realizing that market conditions aren’t what they thought they once were and people start selling their shares. When people start selling the price tends to go down. People aren’t willing to bid up the price anymore. When you bid up a stock you are betting it will be worth whatever you are betting *sometime in the future* and that is super risky. Tesla is more valuable than Toyota? Maybe…maybe…maybe, maybe **not**. That is the risk.
Stocks also tend to go down right after a dividend is paid, even if it is a dividend aristocrat. It is driven up right before the ex date as people buy at the last moment to qualify for the dividend. In that case it is still the essential supply and demand (more people selling, price goes down) but it is not a reflection of the quality of the company.
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