basic question on stock price growth…how it happens ?

POSTED BY trupti ON May 28, 2011 12:25 am ONE COMMENT

Hi Friends,

Though I have not read much before asking your this question. Hope you understand

I have one query regarding value of stock. I am trying to understand how the value of any stock get increase(and not decrease)?

suppose, there is one company called ABC and there are 50 shareholder of that company who bought it’s share in IPO at Rs. 100 each. Now, if all of these are very good investors and they believe in long term investment in stock market. They all believe that company will do lot of progress in next 10 years so we will hold the stock for 10 years. And none of the person ever sold its stock. So if there was NOT a SINGLE transaction of buy or sell for that stock there is no question of someone asking that stock for a price more than its current value OR lesser value.

In the above case, how the value of the stock will get increase?

 

 

 

One reply on this article “basic question on stock price growth…how it happens ?”

  1. Jagadees says:

    In the long run the stock price depends on the earnings of the company. so in your case initial investors investors bought 10 shares each of face value 10 for the 100 rupees they invested. Hence all the investors pooled together a total of 5000 rupees and started the operation of the company. So as and when the company makes profits year after year, your initial value of share also starts rising proportionately……. you may find this article from shyams column to be useful – http://www.shyamscolumn.com/2009/11/q-introduction-to-investing-in-stocks.html and also this youtube video – http://www.youtube.com/watch?v=GnJCOof2HJk

    Regards
    Jagadees

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