STOCK EXAMPLE
STOCK EXAMPLE
If buyers of stock are the only factor behind rising stock price, why does the actual company even matter?
How does the actual performance of the company directly impact the stock price, when the fact of the matter is that stock price rises solely due to how many buyers pour their money into the stock?
For example, if I buy stock X on day 1, and by day 10 it has doubled...the conclusion is that it doubled because many people bought the stock over the 10 days. Therefore how is there even a connection to the company's performance?? I know company performance does matter, but I do not see the connection.
Your conclusion is wrong.
On any given ordinary day, the number of shares sold is the same as the number bought. (Aside from the IPO and a few similar circumstances.) So what makes the price rise? It's because the buyers are willing to pay more money for the shares, and the sellers are unwilling to sell for less money.
And why would that be? Because they think the future prospects are good. And why would that be? For some, it's all about momentum (i.e., jumping on the bandwagon). But sooner or later, in the long term, it all comes down to fundamentals like: is the company well run? profitable? is their debt manageable? etc.
After all, when you buy a share, you are buying a small piece of the company. It's not just a piece of paper or an electronic entry, although speculators tend to forget that. If you buy a small piece of a crappy company, sooner or later your shares will reflect that.
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