th that? If the company is worth 7% more and he bought the shares on the open market, why didn't share price go up in proportion to the new value assessment?
2007-09-10 04:50:16 · 7 answers · asked by Anonymous in Business & Finance ➔ Investing
If there is a 7% buying of a company's stock and no selling then the buyer would make the price go up. If the company is selling stock or somebody is, then the price would correspond to the difference in buying or selling. I got that. So that means somebody is selling their stock in Bear Stearns.
2007-09-10 05:08:09 · update #1
Actually somebody is not always selling when somebody is buying. If the price goes up it is because there are more buyers than sellers. If the price goes down, there are more sellers than buyers.
2007-09-10 09:03:12 · update #2
Why would the company be worth 7% more? He's purchasing existing shares.
Look at it this way. You have something worth $100, someone buys 7% of it ($7). The total value is still $100. It doesn't magically become $107.
2007-09-10 04:56:00 · answer #1 · answered by Mark B 5 · 1⤊ 0⤋
When an investor buys shares, they are not buying new shares, they are buying shares that someone else held. In other words, that 7% belonged to someone else the day before. Now, that big of a purchase should have put upward pressure on the stock price, but not necessarily a 7% increase.
The other thing to remember is that purchase did not affect the company's financial picture. That 7% was transfered from one private owner (or multiple owners) to a different owner. The money went to the previous shareholder(s) and not the company.
The only time stock purchases actually affect the company is if they issue new stock. And when they do this, it dilutes the value of the stock because that means the pool of dividends has to be divided up more than normal. Of course it depends on whether the new stock was common or preferred (and I can't remember the difference right now).
2007-09-10 11:59:27 · answer #2 · answered by Justin H 7 · 0⤊ 0⤋
You have no idea what drives stock prices.
If the stock was being bought by someone who could make a mess of the company if they eventually got a seat on the board of directors the stock price could drop like a rock. If the shares were bought from someone who was willing to sell at the market before the market rose significantly there might be no change. If shares were tight and someplace like CNBC said they just heard a rumor that the company was a takeover target the shares might go up spectacularly in anticipation of a big buyout price. If a hurricane approached Gulf oil rigs all of the stocks in the market might lose value even though that is unrelated to Bear Sterns.
2007-09-10 12:01:13 · answer #3 · answered by Rich Z 7 · 0⤊ 0⤋
What makes you think that the company is worth an extra 7%?
If he bought the shares in the open market, the company doesn't get any of that -- the people who sold him their shares get the money.
Your logic would imply that General Motors would get a check every time someone sells a used Chevy.
2007-09-10 11:56:47 · answer #4 · answered by Ranto 7 · 0⤊ 0⤋
Because he only bought 7% of the shares in issue and somebody had to sell them to him.
The knock on affect is a rallying of the share price but not necessarily 7% .
2007-09-10 11:55:32 · answer #5 · answered by Anonymous · 0⤊ 0⤋
Just because someone buys seven percent of a companies shares doesn't change the value of each share. It simply changes the ownership of those shares. The companies value stays the same.
Now if the company increased it's market share by seven percent, that would have a definitive impact on the value of each share.
2007-09-10 11:56:57 · answer #6 · answered by Perplexed 5 · 0⤊ 0⤋
You are correct in the last sentence of your additional details. Somebody is selling. Somebody is always selling when somebody is buying.
2007-09-10 14:14:42 · answer #7 · answered by StephenWeinstein 7 · 0⤊ 0⤋