Tilted Forum Project Discussion Community - View Single Post - Seeking understanding regarding share values relation to company success

ozahs · 08-31-2006, 08:05 PM

I doubt if I can answer your question completely, but I think I can start chipping away at it. Stock prices go up and down because of supply and demand. If someone who has done their homework and properly evaluated a stock determins that the stock of XYZ company is undervalued, he might choose to gamble on it and purchase it with the expectation that the price will rise. (An invester can also gamble that the share price will fall.) If a lot of investors feel the same way, the price rises becaue lots of people are buying it.

When evaluating a stock, a potential investor looks at a lot of differnt things in order to come up with a perception of it's lrelative value, such as ROI(return on investment), P/E (profit to earnings ratio), expense ratio, dividends, quality of management, market trends, etc.

In your example above, the CEO was not perceived as being successful because the stocks of peers performed markedly better than that of his company. There are lots of things that CEOs can do to raise the stock price. Layoffs are one popular strategy, but so are cost cutting measures that reduce the amount of expenses that cut into profits. Some companies diversify, while others narrow thier focus. But it seems to me that the gist of the article was more about the perceived lack of success for the CEO, as opposed to the company itself.

A Sharholder is someone (or an entity) who owns stock in a company. It can be one share, or millions.

As a shareholder of a company, you expect two things out of the ownership experience. One is that the value of your shares should increase as opposed to decrease (unless you have invested in a type of transaction that will give more returns the lower a stock price goes - this type of investing is normaly the realm of very experienced investors). The other potential expectation is that the company will declare a dividend. When this happens, the company takes profits and divides them up by the number of shares outstanding and gives all share owners a piece of the profit. So if there are 100 shares outstanding, and the company has a profit of $100, a $1 dividend goes to the owner of each share. Utilities are known for giving out good dividends, but the share price is less likely to increase steadily. Retirees like to invest in utilities because it gives them a steady income.

When I look at an investment that I have made, I consider it a success if the value of my investment increases at a reasonable rate. Since I don't need dividend income, all my dividends are re-invested in additional shares of stock.

Hope this makes some sense...

08-31-2006, 08:05 PM	#2 (permalink)
ozahs Tilted Location: Eden Prairie, MN	I doubt if I can answer your question completely, but I think I can start chipping away at it. Stock prices go up and down because of supply and demand. If someone who has done their homework and properly evaluated a stock determins that the stock of XYZ company is undervalued, he might choose to gamble on it and purchase it with the expectation that the price will rise. (An invester can also gamble that the share price will fall.) If a lot of investors feel the same way, the price rises becaue lots of people are buying it. When evaluating a stock, a potential investor looks at a lot of differnt things in order to come up with a perception of it's lrelative value, such as ROI(return on investment), P/E (profit to earnings ratio), expense ratio, dividends, quality of management, market trends, etc. In your example above, the CEO was not perceived as being successful because the stocks of peers performed markedly better than that of his company. There are lots of things that CEOs can do to raise the stock price. Layoffs are one popular strategy, but so are cost cutting measures that reduce the amount of expenses that cut into profits. Some companies diversify, while others narrow thier focus. But it seems to me that the gist of the article was more about the perceived lack of success for the CEO, as opposed to the company itself. A Sharholder is someone (or an entity) who owns stock in a company. It can be one share, or millions. As a shareholder of a company, you expect two things out of the ownership experience. One is that the value of your shares should increase as opposed to decrease (unless you have invested in a type of transaction that will give more returns the lower a stock price goes - this type of investing is normaly the realm of very experienced investors). The other potential expectation is that the company will declare a dividend. When this happens, the company takes profits and divides them up by the number of shares outstanding and gives all share owners a piece of the profit. So if there are 100 shares outstanding, and the company has a profit of $100, a $1 dividend goes to the owner of each share. Utilities are known for giving out good dividends, but the share price is less likely to increase steadily. Retirees like to invest in utilities because it gives them a steady income. When I look at an investment that I have made, I consider it a success if the value of my investment increases at a reasonable rate. Since I don't need dividend income, all my dividends are re-invested in additional shares of stock. Hope this makes some sense... __________________ "It ain't no sin to be glad you're alive"