If buyers of stock are the only factor behind rising stock price, why does the actual company even matter?

Question

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.

Answer 1

Your right, the market is driven by buyers, the more the better.

But what attracts buyers to a company???

It could have a pending or a new product that many think will boost the company way over the edge, thus we get buyers coming in.  When the chartist see strong buying, they look and then they might jump on board.  Thus you have many people thinking the new product will make the company great plus the technical people seeing all they buying, they jump in.

When a company announces big sales, or great earnings, many people will look and decide that this may be a company that's going somewhere, so they jump in.

BUT, if people don't like a company, or its products/services aren't thrilling, people don't buy, the stock dies.

Analysts often help a company's stock price by building enthusiasm for a company, providing updated info.  There are people who will follow certain analysts no matter what, look at Jim Cramer

Answer 2

In my opinion, the stock market is a scam. It's a zero-sum game in which you are putting money into the market and competing against other people who are trying to scr*w each other over.

In order for somebody to make money, somebody has to lose money.

Answer 3

Thats a good question that lends to the idea that traditional fundamental analysis is not valid as prices fluctuate on other reasons then solid cash flow and EPS. etc.  

In my fourth year finance course our professor would teach us to think about investing at the extremes, will a company go bankrupt or not, if there going to go bankrupt people will not buy, therefore the price will decrease and once bankrupt it will hold no value.  Therefore if a company is performing well it is less likely to go bankrupt and more people will buy it, increasing the price.  This is clearly simplified however it illustrates that performance effects price.  In addition since dividends can effect the price of a stock a well performing company can be implied (although not always the case) to pay high dividends, which will cause more buyers, therefore increasing the price.

Answer 4

SHARE MARKET IS A SATTA BAZAR

NO RULES, NO REGULATIONS , NO STUDY

ONLY MATRIC FAIL WILL BE THE WINNER

Answer 5

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.