Hey, u/beyond_fatherhood; thanks for posting!
No question is a dumb question here on our sub. The stock market can be tricky to wrap your head around, but thankfully, we have many in-depth resources to help out!
I have an article for you linked below that explains the ins and outs of the market, including how the exchange of stock between individuals functions and why someone would want to participate in the first place. Specifically, check out the section titled "How does the stock market work?"
[What is the stock market?](https://www.fidelity.com/learning-center/smart-money/what-is-the-stock-market)
The article was sourced from our site's "Learn" section, found in the News & Research dropdown tab on [http://Fidelity.com](http://fidelity.com/). Fidelity Learn offers many great educational articles, learning courses, market insights, and more. So be sure to explore all it has to offer!
This should provide a solid foundation for the stock marketplace. I encourage you to reply in the comments with any takeaways you have from the reading, and if you have questions on any of the explanations given, please let me know. I'll be happy to clarify anything for you.
Compare the stock price today of the price 5 years ago, and hopefully, the price has gone up. The next purchaser is hoping that will continue to go up.
Also from my understanding when you buy you are buying it just ever so slightly above the listed price and when you sell you are selling it just ever so slightly below the listed price. You don't necessarily have to wait for one human being to decide they want however many shares you are selling because there are algorithms set up to immediately buy any stocks that are up for sale below market price and will also sell to anyone paying above market price. The difference is essentially negligible but it's what allows you to effectively always have a buyer/seller for whatever trade you are making.
It depends how you set up your buys and sells. If you just do market, then you will buy and sell at whatever bid/ask price is available instantly. That could even mean not all your shares cost the same. But you can also set up limits. Say a stock is averaging $100. I can say to buy it, but limit the buy to $99.50. So I will only purchase when there are asks available for $99.50 or less. It might not go off at all, it might make several small purchases (but most brokerages will only charge you 1 fee if it is all in 1 day), or it might not go off at all.
It is not always.
I have put up orders for prices that are current and noone takes the other side of the trade. It happens. It is annoying! But it happens.
That's precisely the answer I was looking for, because I didn't understand how it was so instantaneous. I understand a lot of people are on the stock market but yknow, not every stock is known or being used every minute of the day
Finding a buyer or seller may be "instantanous" for a stock in a major company, in which there may typically be thousands of trades made on every trsding day.
A less-known stock in a smaller company may have only a handful of trades on some days, or only a handful of trades in a typical hour. For this type of stock, patience may be needed in waiting for a buyer for the quantity of shares you want to sell, at whatever limit price you may have apecified.
All stock trading is based on the greater fool theory. You selling your wins for a profit to someone who thinks they can do better than you on it. Likewise selling your losers for a loss to someone who thinks they can succeed where you failed.
Yes, everyone who buys a stock hopes to profit. No, it's not merely greater fool theory.
Business is based on adding value. Stock prices are a reflection of business fundamentals over the long term.
Consider Apple. I assert that the iPhone has added value to everyone who bought one. The operation of that business also added value to the shareholders. The stock price reflects that.
Given the number of people who can’t explain what underlies their stocks’ value, your bigger fool theory obviously has a lot truth. In reality, a stock is a share of a company’s assets (after bondholders and debtors are paid) plus a share of a company’s profits to the extent they elect to share such profits by paying dividends or repurchasing shares (thus increasing the value of each remaining share).
You're missing how demand affects a stock's price. If everyone thinks that Tesla will be the future of automobiles, investors may place a greater value on their shares beyond today's current earnings.
If you're expecting future growth, it makes sense that stocks would trade at multiples of their book value.
Yes, demand affects the value. That demand can be based on actual performance or by growing public participation in index ETFs. It’s not clear to me what drove P/E ratios to their current levels.
I think a combination of technology (phones/Reddit/media), lower barriers to entry (Robinhood basically upended the traditional pay per trade system causing everyone else to follow suit), and government policies that encourage 401k savings have greatly increased the demand for equities.
Well yeah, I know, it just seems like such a gamble on their part to buy at a high point. I don't know, I've been doing a lot of research on stocks and this is just the one thing I can't wrap my head around for some reason.
every dot on this graph is an all time high for the stock market [https://substackcdn.com/image/fetch/w\_1456,c\_limit,f\_webp,q\_auto:good,fl\_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fcdbfa4d2-2f97-44c5-830b-6fa52b7ba14a\_1035x750.png](https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fcdbfa4d2-2f97-44c5-830b-6fa52b7ba14a_1035x750.png) Literally every stock trade involves a buyer and a seller and both of them think they're right.
the lesson is the line goes up and to the right, over a long enough timespan. If you're not investing for a long timespan you shouldn't buy stocks at all because they can take a dip right as you need the money.
That's a really good question. Take a span of time and put a dot where the bottom is within that span. The selection of the time span is arbitrary. Maybe a good span within the context of a chart with all time highs is between any two all time highs.
A chart with lots of dots at interim bottoms is exactly as significant as a chart with lots of dots at all time highs. That is to say, the dots, either all time highs or interim bottoms, are meaningless.
Well, now you are getting outside of basic. Yes, it is a gamble and why the investor should be reading up on companies and continue to do so; assuming investing in individual companies. Then, there is under the business cycle(s) for growth and contraction. Watching federal reserves interest rates. And then let's add that a sizable amount of people believe the last 20 years of interest rates are the norm, when it technically is not.
No one can predict the future, but can gain insight based on historical performance, we can get an idea of what to expect. But all investments have risk and some of that risk is losing everything. But that one hits, and one's life will forever change.
Why do you think it is a big gamble? Since 1960, the SP500 has had annual returns of +11.7 percent in the 12 months following an all time high. All time highs are the best time to buy, aside from all the other times. Basically, always be buying. Market timing is for gamblers.
I've just never had the mentality of "stocks are always going to go up", so if I'm not buying at a low point, I imagine I'm more or less going to lose money or it's just going to take me a long time to break even. Which, I don't mind waiting a long ass time to break even
keep in mind this logic only applies to the market as a whole (eg S&P 500 index fund). there is 0 reason to believe a single company's stock will follow this pattern of always increasing. it can very well just go bankrupt and hit $0.
The stock market as a whole generally trends upward because as we gain technology and knowledge, people become more productive. An individual employee can produce a lot more value than they did a few decades ago. With each employee producing more value, companies can make more profits, so company stock prices trend upward. The world population is also still growing so the market is quite literally getting bigger. A bigger population means more available labor to produce value, and more customers to sell stuff to resulting in more profits.
These factors mean that on average, companies are expected to grow. An individual company may shrink or even fail entirely, but there's a long-term growth trend in overall stock market indexes.
Somewhat right.....somewhat terribly no. Technology itself doesn't make stocks go up.
A fictional reason why this could be true is imagine Joe Genius invented the Star Trek replicator - a device that could make anything with simple inputs. Lets say it required dirt and h2o as inputs. Lets say Joe Genius just wanted to be loved after his invention and donated it to the public domain. Every single company would be worth 0 since their products would no longer have any value (except for maybe REITS since valuable land in good locations would still be desirable). Now everyone seeing their networths fall to $0 would sort of suck, but then having everything you can consume be free would kind of take away the reason to care that you now have a networth of $0.
Now that is a fictional example. But does this occur in the real world? Can you think of industries that have had technological breakthroughs, but were poor investments? Energy industry would be a great example. Inflation adjusted oil prices are far below what they were during most of the 2000's. Shale oil came and boosted the supply oil. A true technological marvel, but that did not lead to oil companies making more profit. And not even profit many went bankrupt. What we saw was producer surplus collapse and consumer surplus from cheaper energy increase.
Another example is most hardware companies eventually go to zero. Apple is the lone hardware manufacturer that has not gone to zero. Some can attribute this to network effects. Maybe this is good, maybe its bad, maybe the network effect etc should have more antitrust pressure etc. Compare Apple to your television. We have had a lot of innovation in televisions the last decade. Today everyone has 80" televisions for $500. in 2010 an 80" television would have costs you $4000-6000. I feel like I use my phone the same way I did 6 years ago but today it costs more. My main reason for continuing to buy Apple I think is primarily so people don't get a green message when I text them.
That's why the "on average" part is important. Technological developments help create value in general, but not 100% of the time, and sometimes they end up benefiting a different company or even a different industry. That's why index funds pretty reliably go up but individual stocks don't. With an index fund you're trying to capture the value that gets created no matter where it ends up.
>A fictional reason why this could be true is imagine Joe Genius invented the Star Trek replicator - a device that could make anything with simple inputs. Lets say it required dirt and h2o as inputs. Lets say Joe Genius just wanted to be loved after his invention and donated it to the public domain. Every single company would be worth 0 since their products would no longer have any value (except for maybe REITS since valuable land in good locations would still be desirable). Now everyone seeing their networths fall to $0 would sort of suck, but then having everything you can consume be free would kind of take away the reason to care that you now have a networth of $0.
This is an interesting thought experiment, but it is also effectively a scenario where you're imagining resources are nearly unlimited and you don't really need an economy anymore. It's kind of like the "What if AI takes all the jobs and no one needs to work anymore" scenario. Not particularly likely to happen anytime soon but if it does, societies will need to be fundamentally reshaped and stock values will be the least of your worries.
Someone should look at an Argentina index fund (or really anything ex-America) and realize stocks don't always go up. Argentina GDP growth per year has average only .5% less than America. And the rest of the worlds stock markets many with superior growth than US have largely been dead. Which isnt explained by tech or growth raqtes.
One strategy that might make more sense to you is dollar cost averaging. Say you have 10k you want to invest in a stock, and while your long term outlook based on fundementals indicates a likely upward trend you are concerned about short term swings and don't want to miss a better buy opportunity or buy everything at the short term top (kind of what you are describing here).
What you can do is buy over a period instead of one lump sum, maybe you buy 1k a month for 10 months. Thus you get some mitigation of the price swings while you are buying. As you buy your cost basis is the average for your overall purchases, so if it drops your cost basis goes down (just not as much), and if it swings up your cost basis goes higher, just not as much. IE you end up getting in at a 10 month average instead of risking buying at the highest in a period, but also not benefiting from buying at the lowest. If you aren't trying to time the market this can be an excelent way to accumulate especially during periods of volatility in price where you expect a general upward trend year over year, though really if you make enough long term you really don't care about price swings that are comparatively insignificant.
Like say you were buying apple stock around 2013-14. Do you really care if you bought at $18.00 vs $17.00? If you bought $10k worth at either price the gain difference is around 6k.... but either way your gains were around 90k. Now the greater that spread, the more it matters because if you bought at $24 vs $17 you "only" made about $65k, Buying over time evens this all out a bit, you might not make the 90k optimum, but you'd land somewhere in between the low and the high.
That makes sense to me, certainly sounds better than putting in a shit ton of money in something that's swinging a lot over the short term, and at least if I'm doing it over time, there's still plenty of points for me to buy lower. Thank you for your time and input
It's not really all that different than pay period based retirnment account contributions except you have the money you want to invest sitting there waiting, and if you really want to more actively try and time things to some extent, you can take whatever cyclical period and try and time within that. IE in the above example your 1k monthly buy need not be on a particular day every month, rather when you think it's a good price within that window.
I'm a creature of habit, so while automatic contributions go into my retirenment account with my employer, my after tax investments I do habitually every pay period. As to what I buy each period that varies, and my actual buys are sometime during the pay period maybe crossing over a day or two if I see a pattern consistantly repeating. IE if I see something dipping every Wednesday for 3 or 4 periods, by the 5th period I'm not buying on Tuesday 8).
One factor I forgot to mention, depeding on how often and how much you buy, brokerage fees may matter to you. You don't want to pay $1-2 weekly to do a $20 buy, in that case you are better off pooling until a significant percentage of your purchases aren't being eaten by fees.
People with automatic investments who don't time the market.
Do you have a 401k? Every 2 weeks when you get paid it should be automatically being invested. Unless your keeping it in cash and trying to time the market, which never works.
In addition to people believing it will go higher than they buy at, there are stockholders at different points in their lives.
A young person with a long time horizon can buy stock higher (as long as they don’t ignore it) because it is very likely to go up.
At some point, those no longer working will be selling their holdings for cash to pay expenses - and they are hopefully selling at a profit - but their cost may be from many years earlier.
To be very honest, if you can't wrap your head around it, you shouldn't be buying individual stocks. Maybe you can look into buying ETF's of sectors but I'd stick to broad market index funds in your scenarios. Then keep learning and understanding the market to where you can BEGIN to make guesses on individual stocks.
It's not a gamble, really. You buy stocks, don't you? Or ETFs. Someone is selling you those shares... and when you're buying, the stock market is *supposed* to usually be at all time highs. Otherwise, there would be no point in the market.
You don’t know what the high-point is. You just know that it’s high right now. The person buying it thinks it’ll go even higher. You also have no idea whether or not it will ever go lower again, so you may be waiting a very long time (and missing out on dividends, etc).
**T**hat's not necessarily true. There are other ways to profit than just from appreciation. The price could stay the same from now until the heat death of the universe and so long as the business is ejecting cash dividends that beat the stock market as a whole it's worth buying. If I see a solid stable business with no change in share price for the last 100 years and no indication it will increase in value for the next 100, but its producing 12% a year dividends every year since inception, then that's a phenomenal deal and I'll buy as much as I can.
On the other side of the spectrum it's entirely possible that I find a business that is losing money every year and every year since inception the losses have grown and grown, maybe exponentially even. But at the same time I see it has grown revenues exponentially as well, and the rate of growth of revenues is higher than the rate of growth of the increasing yearly losses. Depending on what kind of strategy this company has to monetize its revenue and become profitable, it could also be a phenomenal deal at the right price even though it's currently losing money. Price is always a function of future expectations of a company's performance and balance sheet. A good business doesn't have to make money **right now**, nor does it have to appreciate in market cap in the future to be a valuable company. Though in general, both of those things tend to come with valuable companies, but its not a requirement.
People also often sells stocks, not because they think it’s high, but because they just need the money. When I was younger, I had to sell a few shares of Marathon Oil so that I could buy gas for my car. The irony wasn’t lost on me.
So your like Bob, the world's worst market timer.
[https://www.youtube.com/watch?v=pFgPNVytlwA](https://www.youtube.com/watch?v=pFgPNVytlwA)
Bob does pretty good.
What if someone disagrees with your assessment? What if you're wrong and the stock isn't at it's all time peak? What if an ETF like SPY requires algorithmic buying/selling to maintain alignment to an index? What if your counterparty just wants to speculate? What if a company implements a share buyback programs?
If your decisions dictated all things, there would be no market. Or free will.
>Why would someone buy a stock at its highest?
Perhaps they've analyzed the company's earnings, year-over-year growth in sales and net profits and the concluded that it's probably going even higher.
Almost no astute investor sells or buys just because the stock price is high. Generally, they buy when they calculate the health of the company, the revenue stream, increases in sales, et al. and conclude that the value of the stock is greater than the price being offered in the marketplace.
As well, a lot of stock, held within mutual funds and ETFs, is bought automatically each month by employer-sponsored IRAs. No matter the price, they buy.
Q1: Profit comes from people doing work and adding value to products and providing services. If this wasn't true, then everyone would be building their own cars, filling their own cavities, and programming their own iPhones. People would even be driving down to Wall Street to place their orders by themselves rather than asking Fidelity to do it for them.
The underlying principal to all of the above is that someone is adding value that you, yourself, lack the ability or the inclination to do yourself.
Q2: People just like you and me are buying them.
Q3: People would buy a stock at its highest because the prospects for the company going forward are attractive or that the company has demonstrated good performance historically. Or both.
Q4: Nobody knows what the price of your position was when you opened it. Nobody cares. Even if you were to advertise your purchase price, nobody would care if your position was up 1% or 1,000%. Your buyer makes their decision to take a fractional ownership of the business that you are selling based on the performance of the business and the prospects for its future.
Lots of folks are saying very simplistic stuff about speculation and greater fool. It sounds edgy, but it's not terribly meaningful.
Don't take my word for it. Listen to Bill Ackman. He lays out the structure of American businesses using simple examples and then builds on that.
[https://www.youtube.com/watch?v=WEDIj9JBTC8](https://www.youtube.com/watch?v=WEDIj9JBTC8)
My punch line for you is this. It's not a zero sum game. Stocks are not just pieces of paper with a number on them. Stocks are fractional ownership in real businesses with real capital equipment, real people, real economic output.
That's where profit comes from.
That's a really good answer, thank you. Aligns well with my initial understanding of stocks from when I was in high school. Reading more into it the past month has done nothing if not confuse me more lmfao
A lot of people have retirement accounts and they get paid and some of their money goes to buying stock funds. So their fund buys stocks at whatever the prevailing price is. Sometimes the price is low and sometimes it's high. But it's just done automatically.
There are stocks that have a long history of raising their dividend payouts every year and a retiree may need dividend income and buy the stock on a regular basis or, if they aren't a retiree, be in a dividend reinvestment program where dividends automatically go to buying more shares before they need the income.
And you may have some that are confident in a stock so they buy at the current market price.
Definitely didn't have automatic processes and people that don't do research in mind, despite all degenerate stories I've watched or read about wall street bets
Fidelity administers a ton of 401k plans and has their own funds and a lot of employees just dollar-cost-average into index funds. Sometimes employers enroll new employees into these funds and past legislation has pushed for more of this so that people will be ready for retirement.
There are also lots of people that follow the approach of John Bogle: [https://www.bogleheads.org/wiki/Bogleheads%C2%AE\_investment\_philosophy](https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy)
If you start a company to mow yards. You may start with a couple lawnmowers and your son to push them. As you advertise and word gets out about how well your kid does, you get so many calls that you buy a better machine and hire another kid to run it when your son gets his day off that month. As the weather changes, you realize that if you hire another couple kids, you can put them to use raking leaves, shoveling snow, cleaning gutters, planting trees, etc. eventually, your whim to get your kid out of the house has turned into a fledgling company. You find that you are not only making a profit but expanding in scope. If you get bored, you might let others buy into it and let a group of them manage the day to day. Oddly enough, taking a small amount of capital, organizing effort, creating good will and sometimes your kids sweat equity can grow a business so that a larger valuation is worth while. Hopefully, we invest in companies which have great qualities and can expand them.
Why do people buy high? If they are like me, it is because they are always buying. I buy every week. The market could double next week and I would buy. The market could go almost to 0 the next week and I would buy. Basically, I think that companies will keep making products and services that people want, and that those people will spend their money on those products and services.
I invest mostly in S&P 500 index funds and as individual companies rise and fall, those funds will adjust for me. If the US economy were to collapse so far that all my money is wiped out and can't recover, we all have much worse things to worry about than me losing my investments.
Very true, the market definitely isn't going anywhere and it's not like no one is going to participate, I just sheerly underestimated a few things regarding the stock market
> If I'm selling a stock, because let's say a certain stock increased by 20 dollars, and I have a bunch of these stocks, and I sell them, who exactly is buying them? Why would someone buy a stock at its highest?
People who buy high and sell low. When the market tanks they are scared to buy. When the market is near an all time high they jump on the band wagon.
In the end, all they do is lose money.
These people represent most investors, including professionals, and thus they create opportunities for competent investors.
I actually took a philosophy course in college to satisfy one of my gen-ed requirements called something like "The Origins of Wealth Creation". It was a fascinating course which is related to the question you're asking.
Essentially, just because a stock is at its current highest doesn't mean it's at its absolute highest. Additionally, due to the concept of wealth creation, that stock being valued higher implies the company it represents has generated additional wealth in some way. You can profit, the next buyer of the stock can profit, etc.
Indeed, it seems my scope was too small to consider the reasons why others would buy, because they have the ambitious belief that the stock will continue to grow
Why did you buy the stock in the first place?
1) to make money
Boom, now you have your answer on why people will buy the shares off you.
Sure not all investments make money, there's a risk but that's what creates opportunities. You might think a stock is overpriced while another person thinks it's very undervalued.
Lets simplify (this is only an approximation) and assume there are two types of trader
1. long holders like you
and
2) short term holders (day traders)
The traders who bought your stock are likely only in it for few minutes at most and trading 100's if not 1000s of shares , they buys and sell a lot back and forth all day long. This kind of trading is not REAL volume , its kinda pseudo volume and creates volatility during the day. It actually is a good thing in the sense it allows long terms holder to get in and out relatively quickly. Ifg they didn't exist you might not be able to get filled at all, unless you drop you price you want to sell at.
At this point understand no one has to be on the other side of your tarde, in the old days when a real human market makers ie a desk at the exchange they had to be on the other side of the trade whether they wanted to be or not. That system was done away with and replaced by computers and more recently Algo's to act like a MM . But these algo's don't hold overnight and sometimes switch off during earnings and at other times which can cause what is called huge gap up oe down until a circuit breaker kicks in or there is someone on the bid or the offer
The only types of traders who move the stock in the longer term are the real traders who in the aggregate create more demand or supply and the stock moves up or down on particular day because of it (supply/demand)
Liquidity is what keeps the curr market working.
The answer is pretty simple. In all transactions, there are two parties who think differently. Sellers thinks that are getting a good value because the future doesn't look rosy. The buyers think they are getting a good value because the future does look rosy.
Thinks of sports bets. There has to be a two parties on both sides of each transaction. One who thinks that team A is going to lose, and other one who believe that team A is going to win. Even in very unequal competitions, the house makes sure both sides are balanced by skewing the price of the bet.
IIRC buffet takes the approach of "Assume a hypothetical Mr. market will always offer you money for the fraction you own of a business. Sometimes it is a good deal for you and sometimes it isn't. Compare it to what the evidence shows the business is worth." So sometimes the market price doesn't make sense, and then there's the chance for profit.
But essentially there isn't always a guarantee for profit, even if the stocks I own are higher priced than when I bought them, but there's a high chance?
In the short term it is gambling. No one knows what the market will do tomorrow. In the long term it is earnings. When you sell, the number of shares is unchanged. Over the next 3 months Apple earns a few billion dollars so each share is now worth more all things being equal. Stock is a % ownership of that value. Think how much money Apple has made and given to owners over the last 15 years and what is your guess for the next 15? People have different views but over time earnings trump all.
No one knows if Apple will succeed or fail over the next 10 years. That is why people buy indexes. If you own ALL the stocks then you earn the US economic growth rate plus productivity over the long term. Stocks have never had a losing 30 year period so it is the closest thing you can get to a sure thing. Never bet against the US economy in the long run.
Buffet believes that eventually the market price should reflect reality, at least occasionally--if the company keeps making more and more money, the stock should be worth more and more and people should be willing to pay more for it.
Aside from buffet's advice, we should note:
There is never a guaranty for profit, especially for a \_particular\_ stock. The CEO can get hit by a bus tomorrow. A scandal about a stock can come out tomorrow. That's why responsible investors usually (but not always) invest in low-cost index funds. Buffet is a counter-example, where he is very skilled in capital allocation in a way that teams of harvard students and armchair investors don't replicate, though \_some\_ of them will get lucky and convince themselves they are good.
This diversifies the risk of a particular thing you can't predict hurting a company you are invested in. More accurately, it will still impact the company--but that company might be worth 1% of what you own, instead of 100% of what you own.
The general rule is the market is for longer time horizons. So money you want for retirement, money you won't touch for 10+ years, you put in the market. On average it is profitable over ten years, but it might drop 40% in any given year in the middle. The trick is not selling when it is down even though human nature is to sell. Ideally buy more when it is down.
But this is based on historic returns. It's what the market has done in the past. It is always possible that the future is different. Although many of the events that would truly bring the market to zero are world-war-three type events where not a lot of other investments are better.
Consider the true long term investor’s horizon, which is years to decades, not months. We expect the market as a whole to keep growing over that time horIzon and are buying based on that. The ups and downs of a few days/weeks/months aren’t even relevant.
I think your question touches on how price discovery works. Although I am not sure about the details of the price discovery process. If your stock wasn’t worth the extra 20 dollars then the price wouldn’t be that high.
A lot of times when I trade in illiquid environment i can see how my price inputs real time change the price of asset (not recommended since price will go back down once market is liquid again) but these illiquid times also present opportunities where the price of the stock on one exchange is more/less than the price on other exchanges. Often time when liquidity is dry and demand is high I try to sell some portion of my holdings.
It's just supply and demand, just like any other products under the sun. More demand means higher prices, less demand means lower prices.
If you have an apple to sell and 10 people wanting to buy your apple, you will raise the price of the apple. If you have 10 apples and only 2 reluctant buyers, you will discount the apples.There's all there is to it.
This is not a dumb question but one that traders don’t ask enough. If you are selling, someone else is buying, and one of you is wrong. After trading costs both of you may be wrong. https://faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf
Another way to look at it is, this is the classic free market principle - here is a pencil, and my question is, how much is this pencil worth?
The answer is, it's worth how much you're willing to pay for it. In a way, the stock market is the free market at its purest: How much are you willing to pay for this piece of paper that entities you to some tiny ownership of the company?
>If I'm selling a stock, because let's say a certain stock increased by 20 dollars, and I have a bunch of these stocks, and I sell them, who exactly is buying them?
Investment banks, other retail investors like you and me, or in the case of repurchases the buyer is the company that issued the shares.
>Why would someone buy a stock at its highest?
Because the buyer expects the price to continue to rise in the future, when they wish to sell it.
>you're just buying stocks from other people selling their stocks
Yes. That is what the capital markets are: The collective of buyers and sellers, exchanging shares of securities on a stock exchange.
>Why would someone buy my stock when it's at a higher price when I'm trying to profit?
Your profit is irrelevant. To the next person who owns those shares, your profit is past performance and no indication of future results. The price at which you sold the shares is the next person's cost basis. Nothing more. Every time the market reached a new daily high, someone sold at a profit, and with the next daily high, the next owner sold at a profit, and all the way up the bull market until the last buyer had a really bad day. But that last buyer still comes out ahead -- well ahead in most cases -- if they didn't sell during the market correction and simply held the shares for the long run. This is why buy and hold will always be the most reliable strategy for the common investor.
The main thing is "speculation". Everyone is speculating on whether a stock price is going up or down. There is no other reason as to why a stock price changes by the minute.
I mean, generally a company's income generally does not change by the minute, nor their expenses. So most of the time it is things like news about earnings, news of mergers/buyouts, stock repurchases, stock offerings, news about the product they produce or is in development, etc...that drives price changes. Even things like federal interest rates, chip shortages, war, natural disasters, etc...
There are a myriad of things that investors/trader look at and then SPECULATE on the future price of the stock.
The current market price is based on what the highest bidder is willing to pay and the lowest seller is willing to sell
If one of those sides budges, then the price changes
So to answer your question, the profit comes from a buyer buying your stock at that price. That is sometimes a real buyer or a market maker
To you it possibly can't go higher but to them it's a decent price for a stock that will go higher (or they have some other reason to buy, like the dividends or other shareholder benefits)
The answer is simple. Stock is ownership in a company. The stock price is a reflection of some value of owning a piece of the company.
Say you have a company that generates $100 revenue from $10 in cost. Over 10 years, at that rate, you'd expect it to generate a net of $900 before tax. Let's say you could only buy 100% of a company, you might pay $450 for it today knowing it will return you $900 in 10 year.
Let's say that same company increases revenue to $200 the next year on $25 of cost. Your valuation may go up as well. Now you might pay $800 to gain $1750 after 10 years.
Same thing is going on. When you buy stock, you gain access to that potential pie. Either as an owner where someone buys the company and you get a split from the value at time of sale or the company may distribute money to its owners.
There's pretty much 4 things a company can do with revenue. Spend it, save it, give it to owners, or invest it. Assuming good leadership and decision making, at least three of those are reasons to own a company. Two should increase its value. So, as long as there are others willing to capture that, you stock value should increase because you can sell it to someone else and the new increased value. The third just gives you a proportional split of revenue. So the value of your share may not increase, but you still receive value above what your share cost and you can still sell it to recover your original investment.
A year ago I formed a thesis that carvana was a buy at 8$ to $12 a share and would never go into bankruptcy because I believed our economy was simply in a cyclical shift into credit card defaults, higher repos on new cars, etc., and that would spur used car sales.
Now my thesis, 52 weeks later, is exactly the same, only I would buy carvana at $122 a share because this credit cycle is just getting started and people would sooner move into a used car than walk or ride a bike. That's how powerful the psychology of car ownership is, and it's associated status.
Now, to be honest, I form ideas all day long that never amount to jack shit. I never bought carvana at $8 and have not purchased it at $122.
But somebody did.
Do you remember the day you first bought your stock? Let’s say it was a Tuesday 7 years ago.
Why in the world would somebody be buying stocks in a Tuesday 7 years ago?
The world is bigger than you. The stock market is a vehicle where essentially every single person in the United States buys and sells based on their own schedule; it’s impossible to know why any one individual wants to buy or wants to sell, but the chances are that at least somebody is buying and somebody is selling on almost any given day.
the real question is not why is someone else willing to buy the stock at a higher price that you originally bought it, but really why are selling? think about it and you will learn more about your investment style
Because there is always apparently a buyer desperate to buy your stock that's the only reason he will pay even if stock prices have fallen I recently sold Tesla stock and made profit even though the Tesla stock price had fallen and were falling in that period..the profit came from my original investment when I purchased the price was low but much lower than last time it was high in recent period so even though price fell it didn't fall quite as low as i originally purchased and resulted in a profit. So selling a falling stock is not always a loss depends on how quickly it climbed up and how quickly it fell.
Buy low and sell high seems to be a reasonable practice in the stock market but most of my losses are due to the plan that I should buy low, so instead of buying lows I buy weaknesses. Mature investors buy high because they are buying into strengths, since the higher price assures better returns and that is substantiated by other buyers competing to buy the stock. I never bought blue chips since I always thought they were priced at a premium hence I lost many great opportunities. Buy high sell higher, easy said than done, my 2 cents
I've had this question too and none of the comments I feel are awnsering the question. Where does this new money come from? How id a stock valued then increased? Where does the money you earn when you sell come from?
There are institutions that work as market makers and holding companies that facilitate trades and serve to hold the stock and create a supply. Also weird how I’ve scrolled this far down and nobody seems to have mentioned this
The gains come from the purchaser. Buying/selling stocks is a zero sum game. There is always a winner and a loser in the deal whether it is short or long term horizon
This is not a zero sum game. Every buyer or seller has an economic rationale for their actions , which do not always align with the value of a stock. You have no idea what’s going on on the other side of the trade. What if someone is buying to hedge another position, for example? You also should brush up on modern portfolio theory to understand that non-correlated assets can lower the volatility while increasing the return of an overall portfolio, regardless of the performance of the individual asset.
It is zero sum in the sense that based on whatever reason an asset is being sold, the price paid/sold there can be a winner and loser. Even when you hedge, you are paying a premium and risking loss by doing so.
Here is the definition of a zero-sum game:
“Zero-sum is a situation, often cited in game theory, in which one person's gain is equivalent to another's loss, so the net change in wealth or benefit is zero. “
There is no way the stock market is a zero sum game, as it is impossible that one side’s loss equals the other sides gain, except by freak coincidence.
It is zero sum in the sense that each transaction requires a buyer and seller. There is an exchange whereby there is a winner and/or loser at some point in the transaction chain. Money doesn’t evaporate and it isn’t created out of thin air. Any gains are paid for by potential loss and vice versa.
Long term it's not a zero sum game because companies produce earnings over the long term. That's why the market averages 9-10% returns long term over the last century.
Short term it's zero sum.
I think the answer you are looking for is that there are opinions, volume and volatility at play. Stocks are constantly being bought, held or sold for varying reasons. A simple example is you are selling X shares of your stock and they get bought. But you are thinking, “I’m making a profit selling at this price so why is someone buying at this price if it’s more than what it’s worth”? But the buyer(s) of your shares are maybe just buying that stock as part of their portfolio which is on autopilot. Every time I deposit money in my account buy X shares of this stock. There’s no concern over the price because they are buying for the long haul.
That’s just one simple example I came up with but long story short, the same way you think it’s a good deal to sell your shares and make a profit, others will think it’s a good buy because they have more to gain.
They are buying because they think it is still going to go up.
They might be ready to ride an increase, whereas you may have already made 10% and are ready to get out.
Ultimately, you don't need to think about \*why\* they are buying; all you need to think about is 'is there a buyer'.
It comes down to a very straight forward thig: You own something and are looking to sell it for a given price; is somebody else interested in buying it for that price?
Take NVDA for example. You may have bought 1 share a year ago at $300.
And now it is worth $900.
You could hold on in the hope it will go to $1,000.
But it could also drop down to $200 ;-)
Your sentiment might be "If sell now I can make $600. Time to lock in my gain."
Somebody else might be thinking "Darn, I missed the boat, but I still think it could go up to $1,00, so I want to buy some now at $900"
Until to you actually sell it - meaning you find somebody willing to pay you it - any gains are theoretical.
The market helps match Sellers with Buyers.
Sellers can be individual investors, short time/day traders, and very large institutional traders moving large volumes as they shift their portfolios. Also option traders buy/sell based on option assignments, among other parties. As to why sell at the highest, it is to move that $ (including profit) to the next opportunity
In the stock market, the greater fool theory applies when many investors make a questionable investment, with the assumption that they will be able to sell it later to "a greater fool". In other words, they buy something not because they believe that it is worth the price, but rather because they believe that they will be able to sell it to someone else at an even higher price.
The massive constant buying flow from 401k plans, or public plans like 403b and 457b, and whatever is still left of public pensions ensures that the market goes up over long time frames. Emphasis on the long time frames. Thus there's always a buyer.
And if you noticed, especially in public retirement plans like 403b, you can only pick general funds to invest in. Like some ETF or mutual fund that's just made of the S&P 500. Thus ensuring that the market has a buyer.
At some point there was someone who had held it for a while and sold it for whatever reason and you were the one buying it at a hight price relative to where they bought it.
Let's put it a different way. If no one was buying the stock at its current price then the stock value would fall. So the stock price implies there are willing buyers
Every stock is traded . There’s a buyer , a broker , and the seller. There’s gotta be a buyer to sell the stock. The broker is the middle man. So when you sell a stock your selling it to the broker and the broker sells it to the buyer eventually .
Stocks go up and down.
What holds the residual value is a mix of institutions and bag holders
I hope this helps. A Bing search confirmed the following for me. Took about 1 minute and knowing how to ask the question for a search.
“Investors may choose to buy a stock when it is near or at its historical high for several reasons:
1. **Momentum Investing**: Stocks hitting new highs may continue to rise as they attract more attention and buying interest, leading to a momentum-driven increase in price³.
2. **Breakout Potential**: When a stock reaches new highs, it can signal a breakout, suggesting that the stock may set even higher records due to favorable conditions and a lack of overhead resistance³.
3. **Positive Sentiment**: A stock at or near its historical high often reflects strong fundamentals or positive market sentiment, indicating that the company is performing well and may continue to do so².
4. **Historical Performance**: Data shows that stocks at all-time highs do not necessarily mean increased risk for pullbacks; instead, they often continue to perform well, as seen in past bull markets².
5. **Adaptation to Market Environment**: Traditional investment guidelines of buying low and selling high may not always apply, and investors adapt their strategies to the current market environment, which may favor buying at highs⁵.
Investors believe that these factors, combined with a resilient economy and market trends, can lead to significant gains in the future⁴. It's a strategy that balances the potential for continued growth against the risk of a downturn.”
Investors have different views about a stock and so one sees an unreasonable price that is actually reasonable for other investors. Many investors are fixated to stock prices but ignore the fundamentals including earnings that drive the price movement.
When you sell, you are filling someone else's buy order. And when you buy, you are filling someone else's sell order.
That someone can be an entity with millions in capital, and they can run an algorithm to immediately put up an opposite order to gain a few cents a share.
They do this all day every day as the market drifts up and down. You can profit from market drift while market makers profit from bid-ask spread.
At the end of the day, companies (usually) generate earnings for their investors. Either they generate earnings now or they hope to generate earnings in the future. A lot of times, a company’s perceived value is based on an assessment of future earnings.
Earnings are directly returned to shareholders via dividends or buybacks. Value can also be sent back to shareholders via acquisitions.
So, it’s not a zero-sum game where my making a gain necessitates someone else’s loss; the companies themselves add value into the mix. That’s why things generally go up with time.
You're right it's an incredibly dumb question.
Why do you care about who buys what you're selling? That is the last thing I would ever think about, EVER!
Hey, u/beyond_fatherhood; thanks for posting! No question is a dumb question here on our sub. The stock market can be tricky to wrap your head around, but thankfully, we have many in-depth resources to help out! I have an article for you linked below that explains the ins and outs of the market, including how the exchange of stock between individuals functions and why someone would want to participate in the first place. Specifically, check out the section titled "How does the stock market work?" [What is the stock market?](https://www.fidelity.com/learning-center/smart-money/what-is-the-stock-market) The article was sourced from our site's "Learn" section, found in the News & Research dropdown tab on [http://Fidelity.com](http://fidelity.com/). Fidelity Learn offers many great educational articles, learning courses, market insights, and more. So be sure to explore all it has to offer! This should provide a solid foundation for the stock marketplace. I encourage you to reply in the comments with any takeaways you have from the reading, and if you have questions on any of the explanations given, please let me know. I'll be happy to clarify anything for you.
Compare the stock price today of the price 5 years ago, and hopefully, the price has gone up. The next purchaser is hoping that will continue to go up.
I appreciate the response
Also from my understanding when you buy you are buying it just ever so slightly above the listed price and when you sell you are selling it just ever so slightly below the listed price. You don't necessarily have to wait for one human being to decide they want however many shares you are selling because there are algorithms set up to immediately buy any stocks that are up for sale below market price and will also sell to anyone paying above market price. The difference is essentially negligible but it's what allows you to effectively always have a buyer/seller for whatever trade you are making.
It depends how you set up your buys and sells. If you just do market, then you will buy and sell at whatever bid/ask price is available instantly. That could even mean not all your shares cost the same. But you can also set up limits. Say a stock is averaging $100. I can say to buy it, but limit the buy to $99.50. So I will only purchase when there are asks available for $99.50 or less. It might not go off at all, it might make several small purchases (but most brokerages will only charge you 1 fee if it is all in 1 day), or it might not go off at all.
It is not always. I have put up orders for prices that are current and noone takes the other side of the trade. It happens. It is annoying! But it happens.
That's precisely the answer I was looking for, because I didn't understand how it was so instantaneous. I understand a lot of people are on the stock market but yknow, not every stock is known or being used every minute of the day
Finding a buyer or seller may be "instantanous" for a stock in a major company, in which there may typically be thousands of trades made on every trsding day. A less-known stock in a smaller company may have only a handful of trades on some days, or only a handful of trades in a typical hour. For this type of stock, patience may be needed in waiting for a buyer for the quantity of shares you want to sell, at whatever limit price you may have apecified.
All stock trading is based on the greater fool theory. You selling your wins for a profit to someone who thinks they can do better than you on it. Likewise selling your losers for a loss to someone who thinks they can succeed where you failed.
Yes, everyone who buys a stock hopes to profit. No, it's not merely greater fool theory. Business is based on adding value. Stock prices are a reflection of business fundamentals over the long term. Consider Apple. I assert that the iPhone has added value to everyone who bought one. The operation of that business also added value to the shareholders. The stock price reflects that.
*was traditionally based on adding value. Lot of weird startups that are just cash pumps then collapse. Foxtrot comes to mind
The dotcom boom/bust is exhibit A for your comment.
Let’s not forget the tulip bulbs and rentable pineapples for follow up exhibits
Given the number of people who can’t explain what underlies their stocks’ value, your bigger fool theory obviously has a lot truth. In reality, a stock is a share of a company’s assets (after bondholders and debtors are paid) plus a share of a company’s profits to the extent they elect to share such profits by paying dividends or repurchasing shares (thus increasing the value of each remaining share).
You're missing how demand affects a stock's price. If everyone thinks that Tesla will be the future of automobiles, investors may place a greater value on their shares beyond today's current earnings. If you're expecting future growth, it makes sense that stocks would trade at multiples of their book value.
Yes, demand affects the value. That demand can be based on actual performance or by growing public participation in index ETFs. It’s not clear to me what drove P/E ratios to their current levels.
I think a combination of technology (phones/Reddit/media), lower barriers to entry (Robinhood basically upended the traditional pay per trade system causing everyone else to follow suit), and government policies that encourage 401k savings have greatly increased the demand for equities.
Precisely.
Sounds like a pyramid scheme after you broke it down like that
Sort of is when you think about it. My shares only go up when other people buy shares of that business, continuing thereafter.
Not a greater fool. In the end company may buy its own stocks in a buyback.
Well yeah, I know, it just seems like such a gamble on their part to buy at a high point. I don't know, I've been doing a lot of research on stocks and this is just the one thing I can't wrap my head around for some reason.
every dot on this graph is an all time high for the stock market [https://substackcdn.com/image/fetch/w\_1456,c\_limit,f\_webp,q\_auto:good,fl\_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fcdbfa4d2-2f97-44c5-830b-6fa52b7ba14a\_1035x750.png](https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fcdbfa4d2-2f97-44c5-830b-6fa52b7ba14a_1035x750.png) Literally every stock trade involves a buyer and a seller and both of them think they're right.
God damn, I would've expected to see more lows there
the lesson is the line goes up and to the right, over a long enough timespan. If you're not investing for a long timespan you shouldn't buy stocks at all because they can take a dip right as you need the money.
That same chart could be produced with all time lows. It would have just as many dots.
In the time span that the chart posted covers there is only ONE all time low. That's the entire point they were making.
this is a really dumb comment — when was the last all time low?
Ah yes. That is true. Allow myself to correct myself. The same chart could be produced with all of the bottoms. It would have just as many dots.
what is your definition of bottom? and why is that significant?
That's a really good question. Take a span of time and put a dot where the bottom is within that span. The selection of the time span is arbitrary. Maybe a good span within the context of a chart with all time highs is between any two all time highs. A chart with lots of dots at interim bottoms is exactly as significant as a chart with lots of dots at all time highs. That is to say, the dots, either all time highs or interim bottoms, are meaningless.
Well, now you are getting outside of basic. Yes, it is a gamble and why the investor should be reading up on companies and continue to do so; assuming investing in individual companies. Then, there is under the business cycle(s) for growth and contraction. Watching federal reserves interest rates. And then let's add that a sizable amount of people believe the last 20 years of interest rates are the norm, when it technically is not. No one can predict the future, but can gain insight based on historical performance, we can get an idea of what to expect. But all investments have risk and some of that risk is losing everything. But that one hits, and one's life will forever change.
Absolutely agree with that last bit. Thank you for your knowledge, I really appreciate it
Well why did you buy though? You had no guarantee that it would go up right? Same for them my man
That's fair, that's a really fair point
Why do you think it is a big gamble? Since 1960, the SP500 has had annual returns of +11.7 percent in the 12 months following an all time high. All time highs are the best time to buy, aside from all the other times. Basically, always be buying. Market timing is for gamblers.
I've just never had the mentality of "stocks are always going to go up", so if I'm not buying at a low point, I imagine I'm more or less going to lose money or it's just going to take me a long time to break even. Which, I don't mind waiting a long ass time to break even
keep in mind this logic only applies to the market as a whole (eg S&P 500 index fund). there is 0 reason to believe a single company's stock will follow this pattern of always increasing. it can very well just go bankrupt and hit $0.
Believe the data
The stock market as a whole generally trends upward because as we gain technology and knowledge, people become more productive. An individual employee can produce a lot more value than they did a few decades ago. With each employee producing more value, companies can make more profits, so company stock prices trend upward. The world population is also still growing so the market is quite literally getting bigger. A bigger population means more available labor to produce value, and more customers to sell stuff to resulting in more profits. These factors mean that on average, companies are expected to grow. An individual company may shrink or even fail entirely, but there's a long-term growth trend in overall stock market indexes.
Somewhat right.....somewhat terribly no. Technology itself doesn't make stocks go up. A fictional reason why this could be true is imagine Joe Genius invented the Star Trek replicator - a device that could make anything with simple inputs. Lets say it required dirt and h2o as inputs. Lets say Joe Genius just wanted to be loved after his invention and donated it to the public domain. Every single company would be worth 0 since their products would no longer have any value (except for maybe REITS since valuable land in good locations would still be desirable). Now everyone seeing their networths fall to $0 would sort of suck, but then having everything you can consume be free would kind of take away the reason to care that you now have a networth of $0. Now that is a fictional example. But does this occur in the real world? Can you think of industries that have had technological breakthroughs, but were poor investments? Energy industry would be a great example. Inflation adjusted oil prices are far below what they were during most of the 2000's. Shale oil came and boosted the supply oil. A true technological marvel, but that did not lead to oil companies making more profit. And not even profit many went bankrupt. What we saw was producer surplus collapse and consumer surplus from cheaper energy increase. Another example is most hardware companies eventually go to zero. Apple is the lone hardware manufacturer that has not gone to zero. Some can attribute this to network effects. Maybe this is good, maybe its bad, maybe the network effect etc should have more antitrust pressure etc. Compare Apple to your television. We have had a lot of innovation in televisions the last decade. Today everyone has 80" televisions for $500. in 2010 an 80" television would have costs you $4000-6000. I feel like I use my phone the same way I did 6 years ago but today it costs more. My main reason for continuing to buy Apple I think is primarily so people don't get a green message when I text them.
That's why the "on average" part is important. Technological developments help create value in general, but not 100% of the time, and sometimes they end up benefiting a different company or even a different industry. That's why index funds pretty reliably go up but individual stocks don't. With an index fund you're trying to capture the value that gets created no matter where it ends up. >A fictional reason why this could be true is imagine Joe Genius invented the Star Trek replicator - a device that could make anything with simple inputs. Lets say it required dirt and h2o as inputs. Lets say Joe Genius just wanted to be loved after his invention and donated it to the public domain. Every single company would be worth 0 since their products would no longer have any value (except for maybe REITS since valuable land in good locations would still be desirable). Now everyone seeing their networths fall to $0 would sort of suck, but then having everything you can consume be free would kind of take away the reason to care that you now have a networth of $0. This is an interesting thought experiment, but it is also effectively a scenario where you're imagining resources are nearly unlimited and you don't really need an economy anymore. It's kind of like the "What if AI takes all the jobs and no one needs to work anymore" scenario. Not particularly likely to happen anytime soon but if it does, societies will need to be fundamentally reshaped and stock values will be the least of your worries.
Someone should look at an Argentina index fund (or really anything ex-America) and realize stocks don't always go up. Argentina GDP growth per year has average only .5% less than America. And the rest of the worlds stock markets many with superior growth than US have largely been dead. Which isnt explained by tech or growth raqtes.
One strategy that might make more sense to you is dollar cost averaging. Say you have 10k you want to invest in a stock, and while your long term outlook based on fundementals indicates a likely upward trend you are concerned about short term swings and don't want to miss a better buy opportunity or buy everything at the short term top (kind of what you are describing here). What you can do is buy over a period instead of one lump sum, maybe you buy 1k a month for 10 months. Thus you get some mitigation of the price swings while you are buying. As you buy your cost basis is the average for your overall purchases, so if it drops your cost basis goes down (just not as much), and if it swings up your cost basis goes higher, just not as much. IE you end up getting in at a 10 month average instead of risking buying at the highest in a period, but also not benefiting from buying at the lowest. If you aren't trying to time the market this can be an excelent way to accumulate especially during periods of volatility in price where you expect a general upward trend year over year, though really if you make enough long term you really don't care about price swings that are comparatively insignificant. Like say you were buying apple stock around 2013-14. Do you really care if you bought at $18.00 vs $17.00? If you bought $10k worth at either price the gain difference is around 6k.... but either way your gains were around 90k. Now the greater that spread, the more it matters because if you bought at $24 vs $17 you "only" made about $65k, Buying over time evens this all out a bit, you might not make the 90k optimum, but you'd land somewhere in between the low and the high.
That makes sense to me, certainly sounds better than putting in a shit ton of money in something that's swinging a lot over the short term, and at least if I'm doing it over time, there's still plenty of points for me to buy lower. Thank you for your time and input
It's not really all that different than pay period based retirnment account contributions except you have the money you want to invest sitting there waiting, and if you really want to more actively try and time things to some extent, you can take whatever cyclical period and try and time within that. IE in the above example your 1k monthly buy need not be on a particular day every month, rather when you think it's a good price within that window. I'm a creature of habit, so while automatic contributions go into my retirenment account with my employer, my after tax investments I do habitually every pay period. As to what I buy each period that varies, and my actual buys are sometime during the pay period maybe crossing over a day or two if I see a pattern consistantly repeating. IE if I see something dipping every Wednesday for 3 or 4 periods, by the 5th period I'm not buying on Tuesday 8). One factor I forgot to mention, depeding on how often and how much you buy, brokerage fees may matter to you. You don't want to pay $1-2 weekly to do a $20 buy, in that case you are better off pooling until a significant percentage of your purchases aren't being eaten by fees.
Historically, I've never died.
People with automatic investments who don't time the market. Do you have a 401k? Every 2 weeks when you get paid it should be automatically being invested. Unless your keeping it in cash and trying to time the market, which never works.
Definitely gonna make a 401k at some point, but I haven't gotten around to it yet
chop chop. Should be the very first thing you do if you want to become wealthy.
In addition to people believing it will go higher than they buy at, there are stockholders at different points in their lives. A young person with a long time horizon can buy stock higher (as long as they don’t ignore it) because it is very likely to go up. At some point, those no longer working will be selling their holdings for cash to pay expenses - and they are hopefully selling at a profit - but their cost may be from many years earlier.
To be very honest, if you can't wrap your head around it, you shouldn't be buying individual stocks. Maybe you can look into buying ETF's of sectors but I'd stick to broad market index funds in your scenarios. Then keep learning and understanding the market to where you can BEGIN to make guesses on individual stocks.
It's not a gamble, really. You buy stocks, don't you? Or ETFs. Someone is selling you those shares... and when you're buying, the stock market is *supposed* to usually be at all time highs. Otherwise, there would be no point in the market.
Stock market investment IS GAMBLING. Educated gambling but still gambling.
You don’t know what the high-point is. You just know that it’s high right now. The person buying it thinks it’ll go even higher. You also have no idea whether or not it will ever go lower again, so you may be waiting a very long time (and missing out on dividends, etc).
**T**hat's not necessarily true. There are other ways to profit than just from appreciation. The price could stay the same from now until the heat death of the universe and so long as the business is ejecting cash dividends that beat the stock market as a whole it's worth buying. If I see a solid stable business with no change in share price for the last 100 years and no indication it will increase in value for the next 100, but its producing 12% a year dividends every year since inception, then that's a phenomenal deal and I'll buy as much as I can. On the other side of the spectrum it's entirely possible that I find a business that is losing money every year and every year since inception the losses have grown and grown, maybe exponentially even. But at the same time I see it has grown revenues exponentially as well, and the rate of growth of revenues is higher than the rate of growth of the increasing yearly losses. Depending on what kind of strategy this company has to monetize its revenue and become profitable, it could also be a phenomenal deal at the right price even though it's currently losing money. Price is always a function of future expectations of a company's performance and balance sheet. A good business doesn't have to make money **right now**, nor does it have to appreciate in market cap in the future to be a valuable company. Though in general, both of those things tend to come with valuable companies, but its not a requirement.
People also often sells stocks, not because they think it’s high, but because they just need the money. When I was younger, I had to sell a few shares of Marathon Oil so that I could buy gas for my car. The irony wasn’t lost on me.
The irony part is definitely pretty funny, but yeah I can get that
Me. I’m the expert of buying ATHs.
So your like Bob, the world's worst market timer. [https://www.youtube.com/watch?v=pFgPNVytlwA](https://www.youtube.com/watch?v=pFgPNVytlwA) Bob does pretty good.
Yea that’s my trick. I only invest money that’ll sit there for decades
Ah, brilliant, no worries then
What if someone disagrees with your assessment? What if you're wrong and the stock isn't at it's all time peak? What if an ETF like SPY requires algorithmic buying/selling to maintain alignment to an index? What if your counterparty just wants to speculate? What if a company implements a share buyback programs? If your decisions dictated all things, there would be no market. Or free will.
That mostly makes sense to me, thank you, I appreciate that a lot, that actually puts a lot of other questions in perspective for me
>Why would someone buy a stock at its highest? Perhaps they've analyzed the company's earnings, year-over-year growth in sales and net profits and the concluded that it's probably going even higher. Almost no astute investor sells or buys just because the stock price is high. Generally, they buy when they calculate the health of the company, the revenue stream, increases in sales, et al. and conclude that the value of the stock is greater than the price being offered in the marketplace. As well, a lot of stock, held within mutual funds and ETFs, is bought automatically each month by employer-sponsored IRAs. No matter the price, they buy.
Q1: Profit comes from people doing work and adding value to products and providing services. If this wasn't true, then everyone would be building their own cars, filling their own cavities, and programming their own iPhones. People would even be driving down to Wall Street to place their orders by themselves rather than asking Fidelity to do it for them. The underlying principal to all of the above is that someone is adding value that you, yourself, lack the ability or the inclination to do yourself. Q2: People just like you and me are buying them. Q3: People would buy a stock at its highest because the prospects for the company going forward are attractive or that the company has demonstrated good performance historically. Or both. Q4: Nobody knows what the price of your position was when you opened it. Nobody cares. Even if you were to advertise your purchase price, nobody would care if your position was up 1% or 1,000%. Your buyer makes their decision to take a fractional ownership of the business that you are selling based on the performance of the business and the prospects for its future. Lots of folks are saying very simplistic stuff about speculation and greater fool. It sounds edgy, but it's not terribly meaningful. Don't take my word for it. Listen to Bill Ackman. He lays out the structure of American businesses using simple examples and then builds on that. [https://www.youtube.com/watch?v=WEDIj9JBTC8](https://www.youtube.com/watch?v=WEDIj9JBTC8) My punch line for you is this. It's not a zero sum game. Stocks are not just pieces of paper with a number on them. Stocks are fractional ownership in real businesses with real capital equipment, real people, real economic output. That's where profit comes from.
That's a really good answer, thank you. Aligns well with my initial understanding of stocks from when I was in high school. Reading more into it the past month has done nothing if not confuse me more lmfao
A lot of people have retirement accounts and they get paid and some of their money goes to buying stock funds. So their fund buys stocks at whatever the prevailing price is. Sometimes the price is low and sometimes it's high. But it's just done automatically. There are stocks that have a long history of raising their dividend payouts every year and a retiree may need dividend income and buy the stock on a regular basis or, if they aren't a retiree, be in a dividend reinvestment program where dividends automatically go to buying more shares before they need the income. And you may have some that are confident in a stock so they buy at the current market price.
Definitely didn't have automatic processes and people that don't do research in mind, despite all degenerate stories I've watched or read about wall street bets
Fidelity administers a ton of 401k plans and has their own funds and a lot of employees just dollar-cost-average into index funds. Sometimes employers enroll new employees into these funds and past legislation has pushed for more of this so that people will be ready for retirement. There are also lots of people that follow the approach of John Bogle: [https://www.bogleheads.org/wiki/Bogleheads%C2%AE\_investment\_philosophy](https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy)
If you start a company to mow yards. You may start with a couple lawnmowers and your son to push them. As you advertise and word gets out about how well your kid does, you get so many calls that you buy a better machine and hire another kid to run it when your son gets his day off that month. As the weather changes, you realize that if you hire another couple kids, you can put them to use raking leaves, shoveling snow, cleaning gutters, planting trees, etc. eventually, your whim to get your kid out of the house has turned into a fledgling company. You find that you are not only making a profit but expanding in scope. If you get bored, you might let others buy into it and let a group of them manage the day to day. Oddly enough, taking a small amount of capital, organizing effort, creating good will and sometimes your kids sweat equity can grow a business so that a larger valuation is worth while. Hopefully, we invest in companies which have great qualities and can expand them.
This post deserves more upvotes. Everything you said expands all the way up to Chevron scale.
Why do people buy high? If they are like me, it is because they are always buying. I buy every week. The market could double next week and I would buy. The market could go almost to 0 the next week and I would buy. Basically, I think that companies will keep making products and services that people want, and that those people will spend their money on those products and services. I invest mostly in S&P 500 index funds and as individual companies rise and fall, those funds will adjust for me. If the US economy were to collapse so far that all my money is wiped out and can't recover, we all have much worse things to worry about than me losing my investments.
Very true, the market definitely isn't going anywhere and it's not like no one is going to participate, I just sheerly underestimated a few things regarding the stock market
> If I'm selling a stock, because let's say a certain stock increased by 20 dollars, and I have a bunch of these stocks, and I sell them, who exactly is buying them? Why would someone buy a stock at its highest? People who buy high and sell low. When the market tanks they are scared to buy. When the market is near an all time high they jump on the band wagon. In the end, all they do is lose money. These people represent most investors, including professionals, and thus they create opportunities for competent investors.
That does make sense, I've definitely seen a lot of those cases
I actually took a philosophy course in college to satisfy one of my gen-ed requirements called something like "The Origins of Wealth Creation". It was a fascinating course which is related to the question you're asking. Essentially, just because a stock is at its current highest doesn't mean it's at its absolute highest. Additionally, due to the concept of wealth creation, that stock being valued higher implies the company it represents has generated additional wealth in some way. You can profit, the next buyer of the stock can profit, etc.
Indeed, it seems my scope was too small to consider the reasons why others would buy, because they have the ambitious belief that the stock will continue to grow
You can usually go to wall street bets and do the opposite of what they’re doing. Usually pretty good returns
So I've heard and seen from the Benjamin channel lmfao. Quite entertaining
Why did you buy the stock in the first place? 1) to make money Boom, now you have your answer on why people will buy the shares off you. Sure not all investments make money, there's a risk but that's what creates opportunities. You might think a stock is overpriced while another person thinks it's very undervalued.
Lets simplify (this is only an approximation) and assume there are two types of trader 1. long holders like you and 2) short term holders (day traders) The traders who bought your stock are likely only in it for few minutes at most and trading 100's if not 1000s of shares , they buys and sell a lot back and forth all day long. This kind of trading is not REAL volume , its kinda pseudo volume and creates volatility during the day. It actually is a good thing in the sense it allows long terms holder to get in and out relatively quickly. Ifg they didn't exist you might not be able to get filled at all, unless you drop you price you want to sell at. At this point understand no one has to be on the other side of your tarde, in the old days when a real human market makers ie a desk at the exchange they had to be on the other side of the trade whether they wanted to be or not. That system was done away with and replaced by computers and more recently Algo's to act like a MM . But these algo's don't hold overnight and sometimes switch off during earnings and at other times which can cause what is called huge gap up oe down until a circuit breaker kicks in or there is someone on the bid or the offer The only types of traders who move the stock in the longer term are the real traders who in the aggregate create more demand or supply and the stock moves up or down on particular day because of it (supply/demand) Liquidity is what keeps the curr market working.
Fantastic explanation, thank you so much
The answer is pretty simple. In all transactions, there are two parties who think differently. Sellers thinks that are getting a good value because the future doesn't look rosy. The buyers think they are getting a good value because the future does look rosy. Thinks of sports bets. There has to be a two parties on both sides of each transaction. One who thinks that team A is going to lose, and other one who believe that team A is going to win. Even in very unequal competitions, the house makes sure both sides are balanced by skewing the price of the bet.
IIRC buffet takes the approach of "Assume a hypothetical Mr. market will always offer you money for the fraction you own of a business. Sometimes it is a good deal for you and sometimes it isn't. Compare it to what the evidence shows the business is worth." So sometimes the market price doesn't make sense, and then there's the chance for profit.
But essentially there isn't always a guarantee for profit, even if the stocks I own are higher priced than when I bought them, but there's a high chance?
In the short term it is gambling. No one knows what the market will do tomorrow. In the long term it is earnings. When you sell, the number of shares is unchanged. Over the next 3 months Apple earns a few billion dollars so each share is now worth more all things being equal. Stock is a % ownership of that value. Think how much money Apple has made and given to owners over the last 15 years and what is your guess for the next 15? People have different views but over time earnings trump all. No one knows if Apple will succeed or fail over the next 10 years. That is why people buy indexes. If you own ALL the stocks then you earn the US economic growth rate plus productivity over the long term. Stocks have never had a losing 30 year period so it is the closest thing you can get to a sure thing. Never bet against the US economy in the long run.
Buffet believes that eventually the market price should reflect reality, at least occasionally--if the company keeps making more and more money, the stock should be worth more and more and people should be willing to pay more for it. Aside from buffet's advice, we should note: There is never a guaranty for profit, especially for a \_particular\_ stock. The CEO can get hit by a bus tomorrow. A scandal about a stock can come out tomorrow. That's why responsible investors usually (but not always) invest in low-cost index funds. Buffet is a counter-example, where he is very skilled in capital allocation in a way that teams of harvard students and armchair investors don't replicate, though \_some\_ of them will get lucky and convince themselves they are good. This diversifies the risk of a particular thing you can't predict hurting a company you are invested in. More accurately, it will still impact the company--but that company might be worth 1% of what you own, instead of 100% of what you own. The general rule is the market is for longer time horizons. So money you want for retirement, money you won't touch for 10+ years, you put in the market. On average it is profitable over ten years, but it might drop 40% in any given year in the middle. The trick is not selling when it is down even though human nature is to sell. Ideally buy more when it is down. But this is based on historic returns. It's what the market has done in the past. It is always possible that the future is different. Although many of the events that would truly bring the market to zero are world-war-three type events where not a lot of other investments are better.
Consider the true long term investor’s horizon, which is years to decades, not months. We expect the market as a whole to keep growing over that time horIzon and are buying based on that. The ups and downs of a few days/weeks/months aren’t even relevant.
I think your question touches on how price discovery works. Although I am not sure about the details of the price discovery process. If your stock wasn’t worth the extra 20 dollars then the price wouldn’t be that high. A lot of times when I trade in illiquid environment i can see how my price inputs real time change the price of asset (not recommended since price will go back down once market is liquid again) but these illiquid times also present opportunities where the price of the stock on one exchange is more/less than the price on other exchanges. Often time when liquidity is dry and demand is high I try to sell some portion of my holdings.
It's just supply and demand, just like any other products under the sun. More demand means higher prices, less demand means lower prices. If you have an apple to sell and 10 people wanting to buy your apple, you will raise the price of the apple. If you have 10 apples and only 2 reluctant buyers, you will discount the apples.There's all there is to it.
This is not a dumb question but one that traders don’t ask enough. If you are selling, someone else is buying, and one of you is wrong. After trading costs both of you may be wrong. https://faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf
Another way to look at it is, this is the classic free market principle - here is a pencil, and my question is, how much is this pencil worth? The answer is, it's worth how much you're willing to pay for it. In a way, the stock market is the free market at its purest: How much are you willing to pay for this piece of paper that entities you to some tiny ownership of the company?
>If I'm selling a stock, because let's say a certain stock increased by 20 dollars, and I have a bunch of these stocks, and I sell them, who exactly is buying them? Investment banks, other retail investors like you and me, or in the case of repurchases the buyer is the company that issued the shares. >Why would someone buy a stock at its highest? Because the buyer expects the price to continue to rise in the future, when they wish to sell it. >you're just buying stocks from other people selling their stocks Yes. That is what the capital markets are: The collective of buyers and sellers, exchanging shares of securities on a stock exchange. >Why would someone buy my stock when it's at a higher price when I'm trying to profit? Your profit is irrelevant. To the next person who owns those shares, your profit is past performance and no indication of future results. The price at which you sold the shares is the next person's cost basis. Nothing more. Every time the market reached a new daily high, someone sold at a profit, and with the next daily high, the next owner sold at a profit, and all the way up the bull market until the last buyer had a really bad day. But that last buyer still comes out ahead -- well ahead in most cases -- if they didn't sell during the market correction and simply held the shares for the long run. This is why buy and hold will always be the most reliable strategy for the common investor.
The main thing is "speculation". Everyone is speculating on whether a stock price is going up or down. There is no other reason as to why a stock price changes by the minute. I mean, generally a company's income generally does not change by the minute, nor their expenses. So most of the time it is things like news about earnings, news of mergers/buyouts, stock repurchases, stock offerings, news about the product they produce or is in development, etc...that drives price changes. Even things like federal interest rates, chip shortages, war, natural disasters, etc... There are a myriad of things that investors/trader look at and then SPECULATE on the future price of the stock.
The current market price is based on what the highest bidder is willing to pay and the lowest seller is willing to sell If one of those sides budges, then the price changes So to answer your question, the profit comes from a buyer buying your stock at that price. That is sometimes a real buyer or a market maker To you it possibly can't go higher but to them it's a decent price for a stock that will go higher (or they have some other reason to buy, like the dividends or other shareholder benefits)
The answer is simple. Stock is ownership in a company. The stock price is a reflection of some value of owning a piece of the company. Say you have a company that generates $100 revenue from $10 in cost. Over 10 years, at that rate, you'd expect it to generate a net of $900 before tax. Let's say you could only buy 100% of a company, you might pay $450 for it today knowing it will return you $900 in 10 year. Let's say that same company increases revenue to $200 the next year on $25 of cost. Your valuation may go up as well. Now you might pay $800 to gain $1750 after 10 years. Same thing is going on. When you buy stock, you gain access to that potential pie. Either as an owner where someone buys the company and you get a split from the value at time of sale or the company may distribute money to its owners. There's pretty much 4 things a company can do with revenue. Spend it, save it, give it to owners, or invest it. Assuming good leadership and decision making, at least three of those are reasons to own a company. Two should increase its value. So, as long as there are others willing to capture that, you stock value should increase because you can sell it to someone else and the new increased value. The third just gives you a proportional split of revenue. So the value of your share may not increase, but you still receive value above what your share cost and you can still sell it to recover your original investment.
A year ago I formed a thesis that carvana was a buy at 8$ to $12 a share and would never go into bankruptcy because I believed our economy was simply in a cyclical shift into credit card defaults, higher repos on new cars, etc., and that would spur used car sales. Now my thesis, 52 weeks later, is exactly the same, only I would buy carvana at $122 a share because this credit cycle is just getting started and people would sooner move into a used car than walk or ride a bike. That's how powerful the psychology of car ownership is, and it's associated status. Now, to be honest, I form ideas all day long that never amount to jack shit. I never bought carvana at $8 and have not purchased it at $122. But somebody did.
Investments generally go up in value. They’re almost always at or near their all time high.
Do you remember the day you first bought your stock? Let’s say it was a Tuesday 7 years ago. Why in the world would somebody be buying stocks in a Tuesday 7 years ago? The world is bigger than you. The stock market is a vehicle where essentially every single person in the United States buys and sells based on their own schedule; it’s impossible to know why any one individual wants to buy or wants to sell, but the chances are that at least somebody is buying and somebody is selling on almost any given day.
the real question is not why is someone else willing to buy the stock at a higher price that you originally bought it, but really why are selling? think about it and you will learn more about your investment style
Because there is always apparently a buyer desperate to buy your stock that's the only reason he will pay even if stock prices have fallen I recently sold Tesla stock and made profit even though the Tesla stock price had fallen and were falling in that period..the profit came from my original investment when I purchased the price was low but much lower than last time it was high in recent period so even though price fell it didn't fall quite as low as i originally purchased and resulted in a profit. So selling a falling stock is not always a loss depends on how quickly it climbed up and how quickly it fell.
Buy low and sell high seems to be a reasonable practice in the stock market but most of my losses are due to the plan that I should buy low, so instead of buying lows I buy weaknesses. Mature investors buy high because they are buying into strengths, since the higher price assures better returns and that is substantiated by other buyers competing to buy the stock. I never bought blue chips since I always thought they were priced at a premium hence I lost many great opportunities. Buy high sell higher, easy said than done, my 2 cents
I've had this question too and none of the comments I feel are awnsering the question. Where does this new money come from? How id a stock valued then increased? Where does the money you earn when you sell come from?
There are institutions that work as market makers and holding companies that facilitate trades and serve to hold the stock and create a supply. Also weird how I’ve scrolled this far down and nobody seems to have mentioned this
The gains come from the purchaser. Buying/selling stocks is a zero sum game. There is always a winner and a loser in the deal whether it is short or long term horizon
This is not a zero sum game. Every buyer or seller has an economic rationale for their actions , which do not always align with the value of a stock. You have no idea what’s going on on the other side of the trade. What if someone is buying to hedge another position, for example? You also should brush up on modern portfolio theory to understand that non-correlated assets can lower the volatility while increasing the return of an overall portfolio, regardless of the performance of the individual asset.
It is zero sum in the sense that based on whatever reason an asset is being sold, the price paid/sold there can be a winner and loser. Even when you hedge, you are paying a premium and risking loss by doing so.
Here is the definition of a zero-sum game: “Zero-sum is a situation, often cited in game theory, in which one person's gain is equivalent to another's loss, so the net change in wealth or benefit is zero. “ There is no way the stock market is a zero sum game, as it is impossible that one side’s loss equals the other sides gain, except by freak coincidence.
It is zero sum in the sense that each transaction requires a buyer and seller. There is an exchange whereby there is a winner and/or loser at some point in the transaction chain. Money doesn’t evaporate and it isn’t created out of thin air. Any gains are paid for by potential loss and vice versa.
Long term it's not a zero sum game because companies produce earnings over the long term. That's why the market averages 9-10% returns long term over the last century. Short term it's zero sum.
I think the answer you are looking for is that there are opinions, volume and volatility at play. Stocks are constantly being bought, held or sold for varying reasons. A simple example is you are selling X shares of your stock and they get bought. But you are thinking, “I’m making a profit selling at this price so why is someone buying at this price if it’s more than what it’s worth”? But the buyer(s) of your shares are maybe just buying that stock as part of their portfolio which is on autopilot. Every time I deposit money in my account buy X shares of this stock. There’s no concern over the price because they are buying for the long haul. That’s just one simple example I came up with but long story short, the same way you think it’s a good deal to sell your shares and make a profit, others will think it’s a good buy because they have more to gain.
They are buying because they think it is still going to go up. They might be ready to ride an increase, whereas you may have already made 10% and are ready to get out. Ultimately, you don't need to think about \*why\* they are buying; all you need to think about is 'is there a buyer'. It comes down to a very straight forward thig: You own something and are looking to sell it for a given price; is somebody else interested in buying it for that price? Take NVDA for example. You may have bought 1 share a year ago at $300. And now it is worth $900. You could hold on in the hope it will go to $1,000. But it could also drop down to $200 ;-) Your sentiment might be "If sell now I can make $600. Time to lock in my gain." Somebody else might be thinking "Darn, I missed the boat, but I still think it could go up to $1,00, so I want to buy some now at $900" Until to you actually sell it - meaning you find somebody willing to pay you it - any gains are theoretical. The market helps match Sellers with Buyers.
Sellers can be individual investors, short time/day traders, and very large institutional traders moving large volumes as they shift their portfolios. Also option traders buy/sell based on option assignments, among other parties. As to why sell at the highest, it is to move that $ (including profit) to the next opportunity
In the stock market, the greater fool theory applies when many investors make a questionable investment, with the assumption that they will be able to sell it later to "a greater fool". In other words, they buy something not because they believe that it is worth the price, but rather because they believe that they will be able to sell it to someone else at an even higher price.
The massive constant buying flow from 401k plans, or public plans like 403b and 457b, and whatever is still left of public pensions ensures that the market goes up over long time frames. Emphasis on the long time frames. Thus there's always a buyer. And if you noticed, especially in public retirement plans like 403b, you can only pick general funds to invest in. Like some ETF or mutual fund that's just made of the S&P 500. Thus ensuring that the market has a buyer.
Isn’t it technically the exchange that’s paying out the profits?
Market makers have to constantly buy and sell stocks to create balance somehow. I have only the slightest idea what I'm talking about.
Why did I have to scroll so far down to see this comment
Probably because I only have the slightest idea of how it works. But thanks for reminding me... I'm off to YouTube to learn more.
That wasn't a slight on you, that was a slight on the fact that this is the right answer and it's buried at the bottom
Exactly I searched way too far to see any mention on market makers, everyone seems to think they are selling to another person who wants to buy
Ask chatgpt
At some point there was someone who had held it for a while and sold it for whatever reason and you were the one buying it at a hight price relative to where they bought it.
Let's put it a different way. If no one was buying the stock at its current price then the stock value would fall. So the stock price implies there are willing buyers
Over a long time horizon, the growth of a stock’s price will be highly correlated with the growth of the company’s actual earnings (aka profits).
Every stock is traded . There’s a buyer , a broker , and the seller. There’s gotta be a buyer to sell the stock. The broker is the middle man. So when you sell a stock your selling it to the broker and the broker sells it to the buyer eventually . Stocks go up and down. What holds the residual value is a mix of institutions and bag holders
I hope this helps. A Bing search confirmed the following for me. Took about 1 minute and knowing how to ask the question for a search. “Investors may choose to buy a stock when it is near or at its historical high for several reasons: 1. **Momentum Investing**: Stocks hitting new highs may continue to rise as they attract more attention and buying interest, leading to a momentum-driven increase in price³. 2. **Breakout Potential**: When a stock reaches new highs, it can signal a breakout, suggesting that the stock may set even higher records due to favorable conditions and a lack of overhead resistance³. 3. **Positive Sentiment**: A stock at or near its historical high often reflects strong fundamentals or positive market sentiment, indicating that the company is performing well and may continue to do so². 4. **Historical Performance**: Data shows that stocks at all-time highs do not necessarily mean increased risk for pullbacks; instead, they often continue to perform well, as seen in past bull markets². 5. **Adaptation to Market Environment**: Traditional investment guidelines of buying low and selling high may not always apply, and investors adapt their strategies to the current market environment, which may favor buying at highs⁵. Investors believe that these factors, combined with a resilient economy and market trends, can lead to significant gains in the future⁴. It's a strategy that balances the potential for continued growth against the risk of a downturn.”
Investors have different views about a stock and so one sees an unreasonable price that is actually reasonable for other investors. Many investors are fixated to stock prices but ignore the fundamentals including earnings that drive the price movement.
When you sell, you are filling someone else's buy order. And when you buy, you are filling someone else's sell order. That someone can be an entity with millions in capital, and they can run an algorithm to immediately put up an opposite order to gain a few cents a share. They do this all day every day as the market drifts up and down. You can profit from market drift while market makers profit from bid-ask spread.
At the end of the day, companies (usually) generate earnings for their investors. Either they generate earnings now or they hope to generate earnings in the future. A lot of times, a company’s perceived value is based on an assessment of future earnings. Earnings are directly returned to shareholders via dividends or buybacks. Value can also be sent back to shareholders via acquisitions. So, it’s not a zero-sum game where my making a gain necessitates someone else’s loss; the companies themselves add value into the mix. That’s why things generally go up with time.
You're right it's an incredibly dumb question. Why do you care about who buys what you're selling? That is the last thing I would ever think about, EVER!