Is it possible for a very large investor to withdraw enough money from a company to cause it’s stock to drop?
Posted by admin in Finance Monday, 3 October 2011 16:57 7 Comments
Is it possible for a very large investor to withdraw enough money from a company to cause it’s stock to drop then reinvest a smaller amount of money at the lower price? Or are their some law dealing with this issue?
Does your interest at your bank drop when you withdrawal a large amount at once?
Of course it would. !
One of the problems that large investors face is that when they want to sell some of their shares, the market impact of selling shares causes the price to drop. This is not an advantage for a large investor, but a decided disadvantage. They can’t sell their shares without automatically getting a lower price for their shares than the market price when they started selling. There are lots of trading techniques meant to minimize this market impact.
There is no advantage to a company selling say 500,000 shares and then buying back 25000. The market impact of selling the 500,000 shares hurts the company when selling the shares. Presumably the impact on the way up and the way down are the same so the company that bought the new 25K shares would be in the same spot as if they had just sold 475K to begin with. If that’s not true, it means the company did such a lousy job unloading their 500K shares that they caused a market panic or something which annihilated their own selling price.
Edit: Why do people like Freya answer questions like this when they haven’t the slightest clue how equity works? All of that answer is wrong.
Short answer, no, it’s not possible, unless the president of your company is an idiot
Stocks are owned and operated by, and ONLY by corporations.
there are two types of stocks, Common and Prefered
Prefered are worth more (as in, a higher percentage, not nessecarily more per unit), and rarley go on sale towards investors, they typically are reserved for directors of the company, and higher ups.
Common, or better known as shares, are sold to the public, and depending on the companies profits / loss determines how much money you get.
A company, can only afford to sell so much stocks, but if they don’t hold the responsability of keeping a generous amount to themselves, they will very quickly go out of business
This is no law against it it’s just not very smart to sell a lot of shares and lose money just to buy a few and expect to recoup your losses ! lol
It’s a common misconception that if Bill Gates were to sell all his microsoft the stock price would plummet for that reason alone …. it might for the reason he is leaving the company ….
This is because people Like Warren Buffet don’t sell 30,000,000 shares on the open market when they want to sell a big chunk of a company they make a deal with another huge investor and sell them all at once.
It is especially if the company is a smaller company.
Do your own research on this stuff. Some people have no clue what moves a stock (Freya Talhamn) but they give answers anyway.
The short answer for your question is…. this move as you describe it would most likely not be profitable. Stock prices move through supply and demand. The company does not control the price.
Yes but by selling more to cause the stock to fall and then buying less at a lower price, the net result of the transaction would be a loss.