What happens if everyone sells their stock for a particular company?
Posted by admin in Finance Friday, 15 April 2011 12:38 3 Comments
Does the company go bankrupt? I’m trying to understand how the stock market works and how it plays into the company’s revenue. If shares aren’t a part of the company, where does the money come from?
The stock price has no effect on the bottom line of the company. The company has already sold off those shares and received the money when they were initially issued. The companies revenue influences the stock price, but the stock price has no influence on revenue.
Take a very close look at the price performance of BP stock for the last 45 days, and you will see the result of what happens when everyone wants out of a stock NOW. The market price and market cap of the company drops dramatically and rapidly,although there will always be some buyers in this situation hoping to pick up bargains when the stock price recovers.As the price moves down rapidly panicky holders sell at whatever the current price is further lowering the value of the stock and the ratio of sellers to buyers increases so that there is less and less buyers willing to purchase the stock at any price.
Imagine you are 10 owners who each owns 10% of a house. Hence there are 10 shares outstanding. If the house is worth $300,000 then each share should sell for approximately $30,000. If everybody wants out at the same time then the sellers will drop their asking price, and compete against each other in order to attract buyers. That does not make the intrinsic value of the house less.