Ziggurat
Penultimate Amazing
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- Jun 19, 2003
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clusterm2 said:
Well, speaking very generally, share prices reflect a lot more than just current profit, the *expected* future profit of a company, and the growth of that profit, play a huge role. Share prices respond to new information, not just about current earnings but also about potential future earnings and risk. So suppose something happens so that people expect a company's profits will go up a lot in a few years (for example, an oil company finds a new big reserve, which will take several years to get online and running). The stock price goes up now in anticipation of that increase in profit. Profits increase, matching that expectation, but that increase has already been factored into the price. If people don't expect that profit to continue to grow (or if they think there's a big enough risk that it won't), then there's no reason for the stock price to continue to climb.
So in regards to the oil companys, if this profit was predictable ahead of time, then it's not going to show up in stock prices now, but back when people were able to make that prediction. So if future prospects aren't looking that great right now, then there's no reason for stock prices to go up any higher even if current earnings are at a record high.
Mycroft
High Priest of Ed
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clusterm2 said:
It's basic supply and demand. When people expect to make money buying a stock, the price rises until enough people who own shares are willing to sell enough to satisfy the demand of people who want to buy shares. The same the other way around, if bad news makes a lot of shareholders want to sell, the price will drop until there are enough buyers to purchase all the shares being sold.
clusterm2 said:
It's simple supply and demand. If more people want the stock than are willing to sell it, the price is higher than if fewer people wanted the stock and/or more people were willing to sell it.
Understand that they're going to try and keep the price of individual shares as low as possible to encourage more people to buy them. It's onvious that if your share is $100 then you're missing out on all the people who would be willing to pay $25 for a share of your company. But if you had four times as many shares, then people who only want to buy $25 worth of shares can do so while the people who want to buy $100 simply buy four shares.
So the price of an individual share doesn't really have anything to do with how well the company is performing.
Mycroft
High Priest of Ed
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Re: Re: Share price mechanism
Uh-uh. Once the initial IPO, the shares are traded/sold among shareholders. If someone new wants to buy in, he doesn't buy the stock from the company, he buys it from another shareholder.
Once the IPO is sold, the actual value of the stock is not really important to the company, except to keep the shareholders happy so that they don't vote a change in management.
Uh-uh. Once the initial IPO, the shares are traded/sold among shareholders. If someone new wants to buy in, he doesn't buy the stock from the company, he buys it from another shareholder.
Once the IPO is sold, the actual value of the stock is not really important to the company, except to keep the shareholders happy so that they don't vote a change in management.
Re: Re: Re: Share price mechanism
They do want to keep their stocks traded, though. That's why they do things like stock splits and other techniques to increase the amount of overall shares. Otherwise, as the company grows share prices might top $1,000 if the company's really successful and then fewer people would be able to by the shares. They want them to keep trading.
Mycroft said:
They do want to keep their stocks traded, though. That's why they do things like stock splits and other techniques to increase the amount of overall shares. Otherwise, as the company grows share prices might top $1,000 if the company's really successful and then fewer people would be able to by the shares. They want them to keep trading.