1. Prices
How is the price of a share determined?
2. Volume
-Why isn’t there an indication of how many shares change hands per day?
-If there is such an index why isn’t this considered important enough to display more prominently in news about the stock market?
3. Nationalising
For an over the counter stock it is set by the best bid and offer from one or more market makers.
Volume really isn’t that useful, although technical market traders will use volume information. Most brokerage firms and some third party websites will show charts with the trading price at the top and the volume at the bottom.
Thank you,
I still have trouble understanding some of this;
1/2. What happens if there is some unfavourable news about some company and most shareholders decide it is irrelevant and keep their shares, do the few who panic and scream SELL! decide the price plummets even if there is no significant trading?
3.I was referring to Fortis in the Netherlands, Hypo Real Estate in Germany, Dexia in France/Belgium etc.
Yes, but there’s nothing special about stocks. If a bunch of people decided tomorrow to put their office chairs up for sale at a very low price, the value of used office chairs would plummet.
Trading is often frantic and wild price gyrations are common as the news is commented upon by the so-called experts on CNBC and Bloomberg.
ultrafilter
Yes, free market etc. But I thought stock value represent the value of the company. Why do Apple sales figures have less impact on stock prices than the weather?
dalej42
In theory, the stock price time the number of shares out is the value of the company (including future value). However, in real life, though, that’s only true in the sense that the stock market thinks it’s true. Stocks rise and fall due to many factors, and it’s common for a stock’s value be due to factors that have nothing to do with the reality of the company.
The shares ARE your property. Nothing forces you to sell. But most people sell because they don’t want to lose money as the stock goes down, or want to make money as it goes up.
In the case of a buyback, you don’t have to sell back the stock, either. But once the buyback period is over, the stock will be worthless.
You are confusing a buyback with a merger. If company ABC is acquiring company XYZ for a certain amount per share, once that merger is approved, you **are **selling your shares for that price. Company XYZ’s shares will cease trading.
If there is a buyback, they you do have the option to sell your shares at the buyback price or hold on to them.
Then you’ve not been paying attention over the past month. On September 7, the Federal Housing Financing Authority took over Fannie Mae and Freddie Mac, putting them under conservatorship:
As part of the conservatorship, dividends to the common and preferred shareholders will be suspended.
Then, when AIG was in trouble, the Federal Reserve negotiated a loan that resulted in the federal government taking a 79.9 % equity share in AIG, which includes the power to suspend dividends to the common and preferred shareholders.
So, the net result is that you’ve three of the largest financial institutions in the US now operated by the federal government, and the private shareholders losing their dividends. Sounds like nationalisation to me.
What makes you think sales figures should affect the weather? Seriously, though, why do you think Apple sales figures aren’t important? Keep in mind that the stock market is “forward-looking”. It doesn’t care what is actually happening in a company, only what it’s doing compared to how traders thought it would do. If you see an analyst cut a prediction for earnings, revenue, whatever, the stock price drops.
In case you didn’t know already: There’s three numbers you should be familiar with. 1-Price is the last price the stock traded at. 2-Bid is the highest price that anybody is willing to pay for the stock. 3-Ask is the price that someone is willing to sell it at. The Bid is always lower than the Ask because otherwise, a trade would be executed and a new number would be the Bid and Ask. For example, a stock might trade at $23. If someone out there is offering to buy at $22 and someone out there is willing to sell it at that price, then the quote would fall to $22 and the Bid would be something like $21.95 and the Ask would be like $22.05. The list of all Bids and Asks out there at the current time for a stock is called the “Book”.
As for stock being the value of a company, that’s true in a certain sense, but that value is whatever the traders say it is. There’s a theoretical minimum value which is called the “book value”, basically it’s assets/#stocks. In other words, if the company sold everything it had, down to the staples, and divied it out to each shareholder, that’d be the minimum value of the company. Of course, since the market expects profits and growth, stocks trade much higher than this (roughly 14 times?)
In addition, it is quite possible for the ‘Book Value’ of a company to be higher than its market value - in which case, in normal times it is a prime target for asset stripping - normal times being after the early 1970s.
It is important to draw the distinction, in the case of Fannie and Freddie, between conservatorship and receivership. In conservatorship, the government is taking control over management of the companies, but the ownership still legally remains entirely with the stockholders. Notwithstanding the Wiki article, in nationalization, the government assumes ownership of the company. In the case of Fannie and Freddie, another option would have been receivership, which would mean the government would assume ownership, and would be true nationalization.
I cannot think of a case in the U.S. where the federal government outright assumed ownership of a company, but my memory is short. 
I read a couple of articles on Hypo Real Estate and it looks like the government stepped in with loan guarantees but the company was *not *nationalized (here’s onebut it’s from 9/29).
In the case of Dexia, the governments bought stock at market value to take 70% ownership.This article says that, “Analysts do not view it as a straightforward nationalization as a range of municipal institutions in the two countries already held significant minority stakes since the bank was created in the 1990s.”
Well, if you keep your shares locked up in a vault, they will still be your pieces of paper. However, if you ever want to get anything for them, you’d either have to deposit them into a brokerage account or send them to the transfer agent to redeem them.
If the shares are already held at a brokerage account at the time of the merger, the brokerage firm will redeem the shares automatically.
I generally agree and just wanted to throw a couple things in here. The stock market care a lot about what is actually happening in a company. The traders usually get their idea about what a company is expected to do based on the company’s own projections. That why you see a price adjustment when the company either changes its projections or actual performance doesn’t match the projection. But that adjustment is transient based on what are usually quarterly announcements or significant events, and much more than that goes into market value.
A day trader will value a stock one way and Warren Buffett will value it another. A day trader is just trying to bet on a horse race, and predict what the market price will be in a short horizon. This is based partly on company performance and partly on market reaction. A value-based investor will look long-term at the company’s potential, taking into account its general health, strategy, market conditions, and ability to generate profit. As you mentioned, one stock price metric is price-to-earnings ratio, which is the stock price divided by the current profit-per-year divided by the number of shares. Basically, if the PE ratio is 14, the company will take 14 years to make enough profit to equal the price of all outstanding stock (called the market capitalization). You will remember back in the Dot Com Boom these hi-tech startups were generating PE ratios of over 100, which should have been an indication that something stupid was about to happen. :rolleyes:
Generally, when a company is in receivership, a (I’m drawing a blank) is appointed, and the company is sold piece by piece to pay off its creditors. Usually, there isn’t anything left over to manage or to create business.
The deal covered in that article failed. It will be a bit more expensive than previously thought. Nevertheless it doesn’t look like a nationalization so far.
If nationalisation means the government acquiring the shares compulsorily, then it’s the same as the government acquiring your house by eminent domain: in the end, you have no choice.
Thank you all!
Still some things keep bugging me:
1.
Why isn’t volume considered useful? If 95% of the shareholders think the company is doing fine and will show healthy profits in years to come, why do the actions of the other 5% make headlines?
or
Is it really the case that most stock is owned by people/legal entities who are not interested in the long term prospects of the companies they hold shares in?
I understand you can buy shares with money you loaned with shares as collateral (leverage?)
Is there an ‘real world’ advantage to this? (other than getting rich when the stock goes up)
I mean; if the lender is so sure about my stock, why don’t they just buy it themselves?
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@ Intelsoldier
Why do Apple sales figures have less impact on stock prices than the weather does? ??
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Volume is primarily used by technical traders. Take a look at this chart for AAPL. A techinical trader, who trades off of chart patterns, will often use the volume figures at the bottom of this chart to decide what direction the stock is going. Generally, they’ll see a price jump or drop to be confirmed if it is correlated with a sharp increase in volume. Here is some quick information on technical trading from one of the leading technical analysts.
You’re talking about trading on margin. Here is an article on margin trading.
The brokerage firm will loan you money on margin because they make money charging you interest on the money you are borrowing.