There is a fundamental question that we often find from anyone unfamiliar with the world of shares, the question is like the title above, why stock prices can go up / down? To answer this question we will explore several things about how the initial stock price was determined, also how the stock price changed, as well as the reflection of stock prices on the value of the company and why do we buy shares at an expensive or cheap price? There are many explanations from stock advisor that we can look for on the internet, but it might be easier to understand if we discuss it together.
At first, the price of the stock was determined. Maybe you know the name IPO or an abbreviation of Initial Public Offering. Through this IPO, a company offers some or all of its shares to the public. Through an IPO, the public can participate in capitalizing companies they trust. At an IPO the price is determined by market enthusiasm, estimation of the appraiser, company management, and guarantor. It is through this unique bargaining mechanism that prime prices arise.
Then the stock price is determined by the market. After the IPO, the price of shares circulating in the public will change following the supply and offer schemes in the stock market. This request scheme is carried out through a sophisticated system made on the exchange. This system is like an auction. Everyone can trade shares in this auction system, whether they sell or buy. We can offer shares that we have at a certain price (offer), if there are people who want to buy at our price, then a transaction will occur. And vice versa, we can want to buy shares at a certain price, if there are people who sell at that price then there will be a transaction. If there are many interested people at the same price, the transactions that occur are in priority of who quickly he can. It is from this unique auction mechanism that stock prices are formed. If demand is high it will rise. If demand is low, it will go down.
Does the stock price reflect the true value of the company? Shares outstanding in the public do not represent 100% of a company’s share. It could be that a company only sells 20% of its shares to the public, the remaining 80% is owned by private investors. Ownership of 20% of the company by the public is referred to as minor ownership (minority interest). But there are also several publicly listed companies with more public shares. Does the stock price represent the value of the company? In my opinion, it is only an artificial representation. That is only representation in terms of public perception.