Why do investors buy stock that had appreciated?
For the same reason you wanted it when you bought it. No-one guarantees that you'll be able to sell the stock you hold, and in fact many people get stuck with stocks they'd like to sell, but no-one is buying. But if investors think there's a profit potential that is not exhausted yet - they'll want to buy the stock. People buy stocks with the intention of making money.  They either expect the price to continue to rise or that they will get dividends and the price will not drop (enough) to wipe out their dividend earnings. Imagine how foolish the people that bought Apple at $100 must have felt. It was up tenfold for the $10 it traded at just years prior, how could it go any higher?  Stocks have no memory. A stock's earnings may grow and justify the new higher price people are willing to pay. When FB came public, I remarked how I'd analyze the price and felt it was overvalued until its earnings came up. Just because it's gone down ever since, doesn't make it a buy, yet. From an amateur: Prices aren't entirely rational - they float, and the day to day prices of stock are an excellent example of this.  So how would you assign an appropriate value to it?  There is a logical minimum, the scrap value of the assets and the cash on hand.  However, that doesn't take into account the expectations for growth people have for that company.  If everyone thought a $100 mil company was going to be worth $200 mil by the end of next year, they'd still be willing to pay at a $150 mil price point now. That said, the market is big enough that it's easy enough to find someone who has those growth expectations.  They still expect it to be worth more in the future, and they'll buy it now.  And if no one buys at that price point, that's when prices start to fall. A few reasons.  First, it's hard to buy a stock that has never gone up, and isn't necessarily wise to do so.  Even if you just wait for a stock go down, what if you wait and it goes up two dollars, then drops 10 cents?  Has it gone up or down?  When should you buy it? In general, your idea is correct, the higher the price the less you should want the stock.  But in some sense, the past price is irrelevant, you can't buy it at the past price.  You should buy it now if it's the best option now.  And that is based on your assessment of whether it's future prospects are worth the current price (and in fact enough worth enough to make buying the stock the best economic decision you can currently make). Finally, the price may have gone up for a reason.  The company may have done something, or some information about the company may have become known, that affects it's future prospects.  That might make it a better deal, perhaps even better than it was before the price increase. "I understand you make money by buying low and selling high. You can also make money by buying high and selling higher, short selling high and buying back low, short selling low and buying back even lower. An important technique followed by many technical traders and investors is to alway trade with the trend - so if the shares are trending up you go long (buy to open and sell to close); if the shares are trending down you go short (sell to open and buy to close). ""But even if the stock price goes up, why are we guaranteed that there is some demand for it?""  There is never any guarantees in investing or trading. The only guarantee in life is death, but that's a different subject. There is always some demand for a share or else the share price would be zero or it would never sell, i.e zero liquidity. There are many reasons why there could be demand for a rising share price - fundamental analysis could indicated that the shares are valued much higher than the current price; technical analysis could indicate that the trend will continue; greed could get the better of peoples' emotion where they think all my freinds are making money from this stock so I should buy it too (just to name a few). ""After all, it's more expensive now."" What determines if a stock is expensive? As Joe mentioned, was Apple expensive at $100? People who bought it at $50 might think so, but people who bought at $600+ would think $100 is very cheap. On the other hand a penny stock may be expensive at $0.20. ""It would make sense if we can sell the stock back into the company for our share of the earnings, but why would other investors want it when the price has gone up?"" You don't sell your stocks back to the company for a share of the earnings (unless the company has a share-buy-back arrangement in place), you get a share of the earnings by getting the dividends the company distributes to shareholders. Other investor would want to buy the stock when the price has gone up because they think it will go up further and they can make some money out of it. Some of the reasons for this are explained above." "You seem to prefer to trade like I do: ""Buy low, sell high."" But there are some people that prefer a different way: ""Buy high, sell higher."" A stock that has ""just appreciated"" is ""in motion."" That is a ""promise"" (not always kept) that it will continue to go higher. Some people want stocks that not only go higher, but also SOON. The disadvantage of ""buy low, sell high"" is that the stock can stay low for some time. So that's a strategy for patient investors like you and me."
"It is important to remember that the stock price in principle reflects the value of the company, so the market cap should drop upon issuance of the the dividend. However, the above reasoning neglects to consider taxes, which make the question a bit more interesting. The key fact is that different investors are going to get taxed on the dividend to varying degrees, ranging from 20% for qualified dividends in the USA for a high-income individual in a taxable account (and even worse for non-qualified dividends) to 0% for tax-exempt nonprofits, retirement accounts, and low-income individuals. The high-tax investors are going to be a bit averse to paying tax on that dividend, whereas the tax-free investors are not. Hence in a tax-rational market the tax-free investors are going to be the ones buying right before a dividend and the tax-paying investors will be buying right afterwards. Tax-exempt investors could in principle make some amount of money buying dividends to keep them off the tax-paying investors' books.  (Of course, the strategy could backfire if too many people did it all at once.) That said, the tax-payers have the tax disincentive to prevent them from fully exploiting the opposite strategy of selling just before a dividend.  In particular, they are subject to capital gains tax when they sell at a profit (unless they have enough compensating capital losses), and it is to their after-tax profit to defer taxation by not trading. That said, the stock market has well-known irrationality when it comes to considering tax consequences, so logic based on assumed rationality of the market does not always apply to the extent one would expect.   The foremost example of tax-irrationality is the so-called ""dividend paradox"", which basically states that corporations should favor stock buybacks (or perhaps loan repayment) to the complete exclusion of dividends because capital gains are taxed less harshly than dividends in a variety of ways, some of which are subtle: 1) Historically (although not currently in the USA for qualified dividends) the tax rate was higher for dividends.  (In Canada, for example, dividends are taxed at twice the rate of capital gains.) 2) If you die holding appreciated stock then you (meaning your heirs) completely escape US the capital gains tax on the accrual during your lifetime. 3) Capital gains tax can be deferred by simply not selling.  In comparison to dividends, this is roughly equivalent to getting a tax-free loan from the government which is invested for profit and paid at a later date after inflation has eaten away at the real value of the loan.  For example, if all your stock investments increase by 10%/year but you sell every year, in a high-tax bracket situation you're total after-tax return will be only 8% per year.  In contrast, if you hold the same investments for many many years and then sell, your total return will be nearly 10% per year, because you only pay 20% once (at the end). 4) A capital gain can often be neutralized by a capital loss in another stock, so that no tax results.  If you loose money on a stock that is paying dividends, you're still going to have to pay tax on that dividend.  There are companies that borrow money to pay out that taxable-dividend each quarter, which seems like gross tax malpractice on the part of the CFO. (If the dividend paradox doesn't make sense, first consider the case that you owned ALL the shares of a company.  It wouldn't matter to you at all on a pre-tax basis whether you got a $1000 company buyback or a $1000 dividend, because after the buyback/dividend you'd still own the entire company and $1000.  The number of shares would be reduced, but objecting that you owned fewer shares after the buyback would be like saying you have become shorter if your height is measured in inches rather than centimeters.) [Of course, in the case of many shareholders you can get burned by failing to sell into the buyback when the share price is too high, but that is another matter.]" "They pretty much already have what you are looking for.  They are called Unit Investment Trusts.  The key behind these is (a)  the trust starts out with a fixed pool of securities.  It is completely unmanaged and there is no buying or selling of the securities, (b) they terminate after a fixed period of time, at which time all assets are distributed among the owners. According to Investment Company Institute, ""securities in a UIT are   professionally selected to meet a stated investment objective,  such   as growth,  income, or capital appreciation."" UITs sell a fixed    number of units at one-time  public offering. Securities in a UIT do    not trade actively, rather, UITs use a  strategy known as    buy-and-hold. The UIT purchases a certain amount of  securities and    holds them until its termination date. Holdings rarely change   throughout the life of the trust so unit holders know exactly what    they're  investing in, and the trust lists all securities in its    prospectus. Unit trusts  normally sell redeemable units - this    obligates the trust to re-purchase  investor's units at their net    asset value at the investors request." "With regards to ""the stock market,"" there are actually two markets involved here: PRIMARY MARKET Value is created in the primary market where capital is exchanged for a residual interest in an opportunity.  As a theoretical example, if a person operating solo (or with a small team) were to discover or create a breakthrough product, such as an retro-aging pill, that person likely wouldn't have the financial means to fully capitalize on his new-found idea.  Others with more capital may also soon discover his idea or improve upon it and exploit it before he has a chance to. For a real life example, a person studying at a California university during the 1990s discovered a method to index internet webpages and was approached by some students after a talk on the subject.  He returned to his native southern Europe country seeking funds to develop the web-indexing business and failed to do so.  Two of the students that approached him found capital readily available from investors in their campus sphere; their business is today one of the biggest in the world.  They had exchanged part of their residual interest for capital to develop their business. The primary market of the stock market works mostly same in creating value.  It is also dependent upon the secondary market. SECONDARY MARKET The secondary market indicates the day-to-day value of an enterprise.  That market allows shareholders to manage their risk appetites and the enterprise's operators to execute their shareholders' interest for gains.  In most cases, a secondary market reference will be used for pricing a primary market issuance.  Without that reference, capital would be allocated less efficiently creating additional costs for all involved, issuers and investors. Consider what would happen if you sought to purchase a house and the mortgage lenders had no indication what the property was worth.  This would make capital very expensive or possibly deny you access to credit.  By having an indication, all involved are better off.  That is value creating. There are some large developed economies' equity markets, such as that in Germany, where many large enterprises stay privately held and credit financing, mostly from banks, is used.  The approach has proven successful as well. So why do some nations' financial markets still rely on capricious stock markets when private credit financing may do just fine in many cases?  It's largely a matter of national culture.  Countries such as the Netherlands, the UK and the US have long had active equity markets in continuous use that investors have trusted for centuries. CONCLUSION When leaders of an enterprise wish to grow the business to a large size with investment from the stock market, they aren't limited by the size of their banks' capital.  Those leaders and their prospective investors will rely on the secondary market to determine values.  In addition, if the leaders raise equity instead of debt capital, they are usually accorded more flexibility to take risks since shareholders usually have their own flexibility to transfer those risks to other investors if for any number of reasons they choose to do so. Stock markets create value in many other ways.  The above are the main ways." "Stock price is determined by the buyers and sellers, correct? Correct! ""Everything is worth what its purchaser will pay for it""-Publius Syrus What causes people to buy or sell? Is it news? earnings? stock analysis and techniques? All of these things influence investors' perception of how much a stock is worth. If AMZN makes a lot of money one quarter, then the price might go up. But maybe public perception of AMZN changes because of a large scandal. This could cause the share price to decline even with the favorable earnings report. Why do these 'good' or 'bad' news make people want to buy/sell a stock? People invest to make money. If it looks like a company is going to take a turn for the worst, people will sell. If it looks like the company has a bright, cash-laden future in front of them, people will buy. News is one of the many factors people use to determine how well a company will do. Theoretically could a bunch of people short AMZN and drive down the price regardless of how well it is doing? Say investors wanted to boycott AMZN in order to drive down the cost and get some cheap shares. This is pretty silly, but say for the sake of the argument that everyone who owned AMZN decided to sell their shares and no other investor was willing to buy the shares for less than $0.01, then AMZN shares would be ""worth"" $0.01 in that aspect. That is extremely unlikely to happen, though, for two reasons:" I agree with this. I like to buy stocks that are priced low according to value investing principles but set limits to sell if the stock happens to get priced at a point that exceeds X% annualized return, for instance 15% or 30% depending on preference. If the price goes up, I cash out and find the next best value stock and repeat. If the price does not go up, then I hold it which is fine because I only buy what I'm comfortable with holding for the long term. I tend to prefer stocks that have a dividend yield in the 2-6% range so I can keep earning a return.  Also I too like the look of MCD.  GE looks good as well, from this perspective. I think it may be best to take everything you're asking line-by-line. Once you buy stocks on X day of the month, the chances of stocks never actually going above and beyond your point of value on the chart are close to none. This is not true. Companies can go out of business, or take a major hit and never recover.  Take Volkswagen for example, in 2015 due to a scandal they were involved in, their stocks went downhill. Now their stocks are starting to rise again. The investors goal is not to wait as long as necessary to make a profit on every stock purchase, but to make the largest profit possible in the shortest time possible. Sometimes this means selling a stock before it recovers (if it ever does). I think the problem with most buyers is that they desire the most gain they can possibly have. However, that is very risky. This can be true. Every investor needs to gauge the risk they're willing to take and high-gain investments are riskier.  Therefore, it's better to be winning [small/medium] amounts of money (~)100% of the time than [any] amount of money <~25%. Safer investments do tend to yield more consistent returns, but this doesn't mean that every investor should aim for low-yield investments. Again, this is driven by the investor's risk tolerance. To conclude, profitable companies' stock tends to increase over time and less aggressive investments are safer, but it is possible to lose from any stock investment. There's a premium or discount for various stocks subject to influence by the alternatives available to investors, meaning investments are susceptible to the principle of supply and demand. This is easily seen when industries or business models get hot, and everybody wants a tech company, a social media company, or a solar company in his portfolio.  You'll see bubbles like the dotcom bubble, the RE bubble, etc., as people start to think that the industry and not its performance are all that matters.  The stock price of a desired industry or company is inflated beyond what might otherwise be expected, to accommodate the premium that the investment can demand. So if bonds become uniformly less attractive in terms of returns, and certain institutional investors are largely obliged to continue purchasing them anyway, then flexible investors will need to look elsewhere.  As more people want to buy stocks, the price rises.  Supply and demand is sometimes so elementary it feels nearly counter-intuitive, but it applies here as elsewhere. Companies do not support their stock. Once the security is out on the wild (market), its price fluctuates according to what investors think they are worth. Support is a whole different concept, financially speaking: Support or support level refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock. So it is the lowest assumed price for that stock. Once it reaches its price, buyers will rush to the stock, raising its price. The company wants to keep the stock price at acceptable levels, as it can be seen as the general view of the company's health. Also several employees/executives in the company have stock or stock options, so it is in their interest to keep their stock price up. A bond that goes down in value may indicate a believe the bond issuer (government in this case) won't honor the bond when it matures. As for bonds, there is a wealth of reading in this site: Can someone explain how government bonds work? Who sets the prices on government bonds?  Basic understanding of bonds, values, rates and yields