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People paid a very high price to buy companies that weren't really worth that much. When it became clear the companies weren't worth as much as previously thoug
by omarforgotpwd 10y ago
People paid a very high price to buy companies that weren't really worth that much. When it became clear the companies weren't worth as much as previously thought, everyone lost thier money.
A share just means buying a small part of a company. For example I can buy some small fraction of Apple for around $140 today. Owning a piece of the company entitles me to vote on certain things like who leads the company, and also to get a share of their profits. The share price is basically set by adding up all the future earnings of a company and applying some discount. The fact that you can't really know what future earnings is what makes buying a stock inherently risky.
- taejo 10y ago> The share price is basically set by adding up all the future earnings of a company and applying some discount. The share price should be approximately the average different peoples' estimates of the future earnings. There's no one organization setting share prices (you know this, but at the level of explanation you're giving, you should make this clear). During a bubble, people sometimes by shares (or houses, or tulips, or any other goods) knowing they aren't worth the price, but expecting that some "greater fool" will buy them at a higher price because "everybody knows" the price is going up and up. Then the music stops, the market runs out of greater fools, everyone realizes they're stuck holding shares that are worth much less than they paid.