ultimately what determines the value of a stock?

Question

say a stock is purchased at 50$ if u never sell it how is it worth anything. in other words how do you make money with it or is it worthless unless u sell it. whats the return on a stock that isnt sold

Answer 1

This is roughly akin to asking whether a five-dollar bill is worth anything if you don't spend it. When we say something has a worth, we mean that you would be able to exchange it for something. In the case of the five-dollar bill, it's worth something because the U.S. government will enforce your right to pay with it; in the case of the stock, it's worth something because you can always sell it on the open market.

If you're wondering why there are people out there willing to *buy* the stock, it's essentially because one could theoretically put together enough shares to own and then sell (or liquidate) the company, a practice which private equity firms do often engage in. To these people, the stock is worth the discounted future value of the company, and since this is what it's worth to them and they're buying, this is what it's also worth to you.

It is true that some companies will occasionally pass on surplus profits to their investors in the form of dividends. However, dividends are generally relatively small and decrease the value of stock when they're paid out, so the purpose of buying equity products (stock) is certainly not to collect dividends. If you are interested in securities which gradually pays out its entire value to the investor and becomes cash on it's own, there are always corporate bonds...

Answer 2

There are many, many factors that determine the value of stock: performance of the company, revenue, quarterly reports, things that the executives say or don't say, purchases/mergers, products that the company has or doesn't have, and so on. The biggest influence of all of these is fear. Fear is what causes oil prices to go up and down, because investors are worried that violence in oil-producing companies is going to disrupt the supply to other countries, particularly the United States. Speculation that bugs in a new product, such as the delays involved in Airbus's new A380, may hinder its performance can also hurt a company's stock. Every quarter, companies usually release a financial report detailing their revenues for the previous quarter and their outlook for the next one. If the revenues are higher than before, but not quite as high as people are expecting, that generates fear that the company isn't doing as well as it appears, and that can drive the stock price down. Once all of those fears can be appeased, calmed, eliminated, whatever, then the stock price will rise.

Answer 3

The stock you own is a portion of what the company is worth. The stock is worth what someone else is willing to pay for it. The better companies are making profits, pay dividend (a % of their profits). Over the long term good stocks will have their their value go up. When you own the stock, the return on your investment is the dividend and the percentage increase in the stock value.

Answer 4

In truth nothing on the earth has value until one or more humans desire it. If it provides human satisfaction then an item can have value. Example: Water used to be free. Now we are more satisfied to have water that is cleaner and in a convenient package so now it has value or a price. Stocks themselves do not have a direct value except that they can help you to increase your personal wealth and therefor increase the amount of satisfaction that you can achieve. Stocks are a form of currency. If you think about it, gold does not really have much value either. But some people would trade their stocks for a certain quantity of gold. They would merely be changing the way that they carry their accumulated wealth. So stocks (and gold) are just tools that we use to carry around our accumulated wealth until we are ready to trade them for our personal satisfaction. This includes things like food, bottled water, air, Superbowl tickets, Disney World vacations, etc.

Answer 5

The fluctuation in share prices are dependant upon Government policies, company's future growth prospects and general economic conditions in the country. You have to fix a target on the price at which you have purchased and wait for the price to reach the level you have fixed to sell the shares and make money. Whenever there is a raise you should book profit.

Answer 6

Many companies will pay an annual dividend on each stock share. A dividend isa portion of the company's yearly profits, divided by the number of outstanding shares.

The more shares you own, the more money you will make from a dividend. But even ownership of a single share earns something.

Of course, companies who are losing money do not pay dividends.

Answer 7

The $5 dollar bill analogy is pretty good. But the value of a stock is the present value of future cash flows. So, whether its sold or not it does have a value, which changes based on future cash flows.

Answer 8

see the value of a stock is determined by the demand and supply . if the stock you have is in demand the value of your stock increases. unless the stock you have is in no demand automatically the value of your stock decreases.

Answer 9

ultimately demand and supply ratio determines the price of a stock. If you dont book profit you may loose heavily.