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

Stock price is just the latest reported trade.

Hypothetically the total value of the company is *total shares * latest price* (i.e. market cap).

Buying and selling causes the price to move so you can’t just sell 100% of a company and expect everyone to pay the current price unless there is high liquidity (including possibly a backdoor deal with a large buyer that also doesn’t want to move the price *up* while buying).

E.g. Last year a person made up a cryptocurrency called “Squid game”. The price went up until the market cap was in the trillions of dollars. Somebody then sold their stake for ~$3 million, bringing the market cap to zero. That would be an example of low liquidity.