“ A company as large as IBM or General Motors might have divided its ownership stake into something like a billion equal shares. That means
that if at one point during the year you can purchase one share of General Motors for $30 (and for our example we assume the ownership of
General Motors has been divided into one billion equal pieces, or shares), then the implied price to purchase the entire company (all one billion
shares) would be $30 billion. However, if at some point during the same year, General Motors shares could have been purchased for $60
each, that would indicate that the cost to purchase all of General Motors would be $60 billion.
So I ask the question again: How can this be? Can the value of General Motors, the largest car manufacturer in North America, change that
much within the same year? Can a company that large be worth $30 billion one day and then a few months later be worth $60 billion? Are they
selling twice as many cars, making twice as much money, or doing something drastically different in their business to justify such a large
change in value? Of course, it’s possible. But what about the big price changes in IBM, Abercrombie & Fitch, and General Electric? Does
something happen each and every year to account for large changes in the value of most companies?
Remember, every year the results are the same. For pretty much any company that my students name, the range of high and low prices, over
the course of only one year, is huge. Does this make sense? Well, to save the class time (and since my attention span is usually a matter of
seconds), I usually blurt out the answer. No! It makes no sense that the values of most companies swing wildly from high to low, or low to high,
during the course of each and every year. On the other hand, it seems pretty clear that the prices of the shares in most companies swing
around wildly each and every year. All you have to do is look in the newspaper to see that that’s true. “
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