It explained that the value of a stock is based on what people think it is worth, so when it goes from $10 to $5, $5 hasn't dissappeared.
People aren't willing to pay $10 a share anymore. They think it is worth $5.
My problem with this analogy is this, if those shareholders who own most of those $10 shares sell high, then buy back the stock at $5,
they've created the perception of the stock both not being worth $10 a share, then being worth more than $5 a share.
The stock market isn't a car. Its perception of what that car is worth.
If you bought your Ford at $10,000, but now they sell it at $5,000, then you've lost $5,000 (if you try to sell it).
If it really was always worth $10,000, then its value will appreciate when it sells for what it is worth ($10,000).
The real question that needs to be asked is, why was it selling for $10,000, then for only $5,000.
Its the buyers. In the case of the stock market, the car is the same car...but it doesn't get devalued until people quit buying it.
With the stock market, the perception of what a stock is worth is created by the brokers, the news, and what has been going on with the stock.
If people are selling major shares of corporations for top dollar, the perception will be the stock isn't worth as much as what seemed to be.
I believe that is what happened to the stock market. I believe the perception of a failing economy has created one.
This is an except:
Much of the talk this past week has been around Microsoft's drop in share price since they made public their acquisition offer for Yahoo. SAI has a nifty calculator
and tonight Techcrunch Editor Mike Arrington calls the deal a "$80 billion Headache
". TC notes that the share price of Microsoft has dropped from $32.60 per share on January 31 to $28.56, a ~13% drop.
I agree with Mike that the Yahoo deal might be a factor in the decrease in stock price, but I am not sold that it's the only factor. I am certainly no stock guy (go read Howard Lindzon
for that) and will never give stock advice, but I took a look at some other technology companies to see potentially what the market did as a whole during the same time (January 31st - February 8th). Also, check Ashkan's coverage of the deal
, it's very thorough.
What do you think? Is Microsoft stock down because of the Yahoo bid, general market conditions, a combination or neither?
||Jan 31st Close
||February 8th Close
||~ % Change|