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I have a naive question related to this: Why does a company care what its stock price is? If I buy or sell a share of Apple, Apple doesn’t get any money from t

I have a naive question related to this: Why does a company care what its stock price is? If I buy or sell a share of Apple, Apple doesn’t get any money from the transaction, right? Why should a company be concerned about its stock price at all? I’m not talking about when a company IPOs and sells shares, I’m talking about after that.

Eridrus 8y ago
To the extent that you believe a company's primary responsibility is to it's shareholders, increasing the share price (over the long term) is the main thing a company is meant to do.
- adamlett 8y ago
  I would state it more broadly and say that it is the responsibility of the company to ensure a good return on the shareholders' investments. That could be by increasing the share price, but it could also be by paying dividends. Also, remember that a company's stock value doesn't necessarily reflect its true intrinsic value. Sometimes when a company is liquidated, it turns out that it was undervalued by the market. But more importantly, it may valuable to control the company in a way that is not reflected in the share price at all. Warren Buffet gave an example of this the board of the Washington Post in the 70's, when he was advising them how to invest the money in their pension fund. He said that for a newspaper specifically, it might make sense to invest in a printing company because of the benefits it might give to the newspaper to control the printing company. The value of owning the printing company might not directly be reflected in the in the financials of the printing company, but indirectly in the reduced costs or higher quality product of a different company.
tyingq 8y ago
Because when it's lower than expected, shareholders start meddling, sometimes in ways that counter company goals.
- microtherion 8y ago
  And in the extreme case, an undervalued company may be subject to a hostile takeover. Apple is somewhat protected by its sheer size, but at a P/E of 10, it's a quite attractive target.
indemnity 8y ago
The company doesn’t care so much as the employees, especially those who have a significant amount of comp coming from RSUs or other forms of stock, which these days is a large part of the workforce at big tech companies.

Eridrus 8y ago

To the extent that you believe a company's primary responsibility is to it's shareholders, increasing the share price (over the long term) is the main thing a company is meant to do.

adamlett 8y ago
I would state it more broadly and say that it is the responsibility of the company to ensure a good return on the shareholders' investments. That could be by increasing the share price, but it could also be by paying dividends. Also, remember that a company's stock value doesn't necessarily reflect its true intrinsic value. Sometimes when a company is liquidated, it turns out that it was undervalued by the market. But more importantly, it may valuable to control the company in a way that is not reflected in the share price at all. Warren Buffet gave an example of this the board of the Washington Post in the 70's, when he was advising them how to invest the money in their pension fund. He said that for a newspaper specifically, it might make sense to invest in a printing company because of the benefits it might give to the newspaper to control the printing company. The value of owning the printing company might not directly be reflected in the in the financials of the printing company, but indirectly in the reduced costs or higher quality product of a different company.

tyingq 8y ago

Because when it's lower than expected, shareholders start meddling, sometimes in ways that counter company goals.

microtherion 8y ago
And in the extreme case, an undervalued company may be subject to a hostile takeover. Apple is somewhat protected by its sheer size, but at a P/E of 10, it's a quite attractive target.

indemnity 8y ago

The company doesn’t care so much as the employees, especially those who have a significant amount of comp coming from RSUs or other forms of stock, which these days is a large part of the workforce at big tech companies.