Why is stock price related to company earnings? No really.
February 26, 2012 5:47 PM Subscribe
So I completely understand that prices of stocks, like anything in a market, arise from supply and demand. But at the end of the day, why does demand for a stock increase when a company's earnings increase? How does holding the stock of a company whose earnings have increased since purchase benefit a stockholder? It can't purely
be that I care about earnings because I know everyone else cares about earnings because they know everyone else cares about earnings... can it? What is the ultimate source of this caring about earnings? If dividends were more common, I could understand all this as a jockeying for a good deal on a dividend. But as it is, it sounds no different than betting on a never-ending horse race with earnings arbitrarily picked as the indicator of which horse is in the lead.
posted by the jam to Work & Money (24 answers total) 11 users marked this as a favorite