Home
Stocks Simplified Blog
What are Stocks?
Your Questions
Fundamental Analysis
Technical Analysis
Options
Brokers
Contact Us
Chart Patterns
Other Money Sites
Stock Trend
YOUR success
Stock Chart Settings
Oscillators
Different trading types
Candlestick Patterns
Stock Market Articles
Option Greeks
Financial Ratios
Taxes
Mutual Funds
History
Trading Terms
Your Plan
Option Spreads
Spread The Word
What are ETFs
Trading Stock Opitons
Stock Tips
Stock Market Books
Stock Orders
Types Of Insider Trading
Momentum Investing
Stock Market Videos
Trading Strategies
Stock Market News
401k Information
IRA Account Rules
 Commodity Trading
Stock indexes history
[?] Subscribe To This Site

XML RSS
Add to Google
Add to My Yahoo!
Add to My MSN
Subscribe with Bloglines

What's the initial reason for the price rise?




I know about supply and demand so that's not my question. The question is what causes the initial demand. Here's where I'm confused:

We buy a stock and hope it's share price will increase. One of the reasons a share price increases is because a company is doing well (making money etc...) or people anticipate it will do well. And please don't say:

Well, if a company is profitable then that may make the price rise etc....

I know that's how it works but my question is:

What's the initial reason for the price rise?

I think the best way for me to explain my question is with an example.

A home has investment value because the home in and of itself has value. In other words, it's a place of shelter. Because it has this value, that makes it the underlying force as an investment; i.e. I may buy a house not to live in it but strictly as an investment because of it's potential to increase in value. And I know that potential exists because somewhere out there I know there are people who would actually want to live in it. And eveyone else knows of that possibility also so that gets the ball rolling and is why a house can be an investment.


Getting back to stock; If a company is doing well why do I care about buying it? I'm not going to get anything from the company because they are making a profit. In other words, I don't see the initial value of owning shares in the company if they are not going to actually give me compensation for their profit making. Therefore there isn't any initial value to get the investment ball rolling.
The only case that makes the company have value in and of itself as far as I know is if they are paying dividends. Then that would make sense to me; i.e. that would be the catalyst just as a house having investment value exists because the catalyst is that a house in of of itself is a commodity (i.e. people like to live in it)

So, if I had all the people who could buy stock in a room and told them that none of the companies in the stock market will ever issue dividends, then how could buying stock ever work as an investment?
It's not like people get psychologically excited or find some iniate appeal or find prestige in owning a stock of a company doing well.




Comments for
What's the initial reason for the price rise?

Click here to add your own comments

Sep 09, 2010
Stocks Simplified Writes
by: Shaun

Stocks appreciate. The main value of a stock in a strong company is in the future of that company.

Think about it this way. Suppose you are talking to a business owner who is doing well but needs to expand. Would you give him money to help him expand in exchange for a portion of the business? If he has a good business model I would think most people would jump at it.

Even if you don’t get any dividends by investing into the company wouldn’t you like to get into the company before it grows? As the company grows the shares appreciate and you make money.

Sep 13, 2010
Initial reason for price rise?
by: Gary

Sorry Shaun, but based on your response I don't believe you're understanding what I'm asking.
I don't know how else to explain my question. I thought the house analogy would help. Too bad we couldn't talk on the phone.
Perhaps you could present my question to someone else you know and see what they think.

Click here to add your own comments