I was reading an article in the Wall Street Journal just now, and while this question relates directly to that article, it also involves a larger question that relates to stocks, businesses, and success.
To help clarify my confusion, I am going to quote a paragraph or two from the article:
Quote:
Based on Siemens AG's shareprice performance, Chief Executive Klaus Kleinfeld hasn't had the greatest year and a half at the helm of the engineering and electronics conglomerate.
In Mr. Kleinfeld's first 19 months as CEO, shares of the company, based in Munich, have risen 5%-greatly underperforming peers such as ABB Ltd. of Switzerland and Philips Electronics NV of the Netherlands, as well as Germany's DAC index. The DAC index of leading shares has gained 35% since Mr. Kleinfed took over at Siemens in January 2005. Meanwhile, ABB shares have more than doubled and Philips shares have climbed 39%. Siemens shares rose 2% yesterday to 64.79 ($82.43), up 1.72.
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I am having trouble understanding the relation of a company and its shareprice to its investors. Furthermore, what exactly causes shareprices to rise and fall?
Both of those questions seem very basic in nature to me, and while I likely am able to partly answer both of them, there is also a feeling of ignorance regarding how company share price is related to its success, and how that ties into its shareholders.
Is a company's success determined solely on the value of its stock? In the quoted portion above, it seems that there is a direct correlation between success and shareprice, but I don't really understand what that correlation is.
Furthermore, when publications mention shareholders, are they strictly referring to those that have huge investment in the company, thus excluding Joe Average who recently invested $10,000, buying 154 shares, in the hopes of turning a profit so his kid can go to a better college in the fall?
If someone could clarify or explain more specifically how the entire process works, I would greatly appreciate it.