Stock price determination by public?

I think we can all agree that stock prices are determined by supply and demand for that stock. It's from this notion that stems my question, and I wanted to make sure I was right.
This would mean that a company's stock price is solely determined by what the public THINKS those companies assets are, rather than what their assets actually are. For example, let's say that a company messed up and somehow destroyed the companies future and the value of their assets, but they were somehow able to keep it a secret, then for that time being, there would be no movement in stock price, as the supply and demand for those stocks would not change. As soon as it would be released in the press, however, people would start fearing that the price of the stock will go down, and every shareholder will want to sell, no one will want to buy, and so the stock price will go down.
I'm wondering if I'm entirely right or if some of the nuances of my knowledge are to be corrected. Thanks to anyone that can help.

Hi Germain --

People who view share valuations as based on fundamentals, such as followers of Graham and Dodd, would say that the price of a share is the present value of the future dividend stream, discounted back to current dollars.

They continue that deviations from fundamental value are either expectation of changes in the dividend stream, or speculation.

Your suggestion is that speculation is the predominant reason.

Best,
Howard

Hi Germain --

Your scenario of a company being worth less than the latest analyst evaluation, but share prices not reflecting that discount, fit into concepts about "market efficiency."

About half way down this page there is an explanation of three degrees of efficiency:
http://www.investopedia.com/articles/02/101502.asp

In my opinion, insiders always have information that is not available to non-insiders. That gives them an advantage. In the US, trading shares of a company where the trader has insider information is illegal. In the US, a person who is not an insider, but receives inside information from an insider and trades in that security is guilty of insider trading. Other countries are more relaxed about it.

Best,
Howard

germaindudek said:

I think we can all agree that stock prices are determined by supply and demand for that stock. It's from this notion that stems my question, and I wanted to make sure I was right.
This would mean that a company's stock price is solely determined by what the public THINKS those companies assets are, rather than what their assets actually are. For example, let's say that a company messed up and somehow destroyed the companies future and the value of their assets, but they were somehow able to keep it a secret, then for that time being, there would be no movement in stock price, as the supply and demand for those stocks would not change. As soon as it would be released in the press, however, people would start fearing that the price of the stock will go down, and every shareholder will want to sell, no one will want to buy, and so the stock price will go down.
I'm wondering if I'm entirely right or if some of the nuances of my knowledge are to be corrected. Thanks to anyone that can help.

Click to expand...

I think you're on the right track. There's no 'value' without a human evaluation. A number on a balance sheet is just a number until a human has ascribed a personal value to it. We all acsribe value differently, hence the inefficiency which can be traded.

So sentiment becomes a really important varaible. And some people's sentiment seems much more powerful than others. If you knew Soros was buying gold++ secretly, you wouldn't hesitate to get on that action, even without knowing anything else.

Oprah Winfrey was in the news yesterday for having bought a 10% stake in Weight Watchers. The stock shot up over 100% in a day netting her hundreds of $millions in paper profits. New meaning to the term 'whale'! lol, sorry Oprah.

germaindudek said:

I think we can all agree that stock prices are determined by supply and demand for that stock. It's from this notion that stems my question, and I wanted to make sure I was right.
This would mean that a company's stock price is solely determined by what the public THINKS those companies assets are, rather than what their assets actually are. For example, let's say that a company messed up and somehow destroyed the companies future and the value of their assets, but they were somehow able to keep it a secret, then for that time being, there would be no movement in stock price, as the supply and demand for those stocks would not change. As soon as it would be released in the press, however, people would start fearing that the price of the stock will go down, and every shareholder will want to sell, no one will want to buy, and so the stock price will go down.
I'm wondering if I'm entirely right or if some of the nuances of my knowledge are to be corrected. Thanks to anyone that can help.

Click to expand...

If a company is defrauding the public like that though it may influence supply in that insiders of the company who own shares would be attempting to offload them. If they didn't have very many it may be negligible. However, if the CEO owns 10% of the company (obviously a smaller company) and he starts trying to offload all of those shares into the market, the price can go down prior to the bad news hitting. This is why it can be a huge warning sign if you see good news on the company publicly but the price is going down.

You are correct though that if the company is in real bad shape and it gets released its stock price will crash. However, it can also then quickly sky rocket to only go to 0 - see Forge Group, the subsequent ANZ bailout, and the subsequent ANZ withdrawal. I recall losing a good amount of money on forge group but then in a single day I made like 90% of it back day trading the stock. It fell like 90% and I decided to buy more in the morning and sold it all in the afternoon. The price then was just very volatile for a while until the company finally folded.