And as a shareholder you want more cheese per slice, or more earnings per share instead of just sales growth funded by debt. Like the economy, you do not want some harebrained
CEO telling its owners to focus on sales growth and never mind the companys liabilities.

However, in the real world, good ideas come to people of modest means, and groups of people of modest means can be interested in creating capacity in an industry. Corporations were created for this reason- to allow people to pool interests. Once pooled, as people die, etc., there needs to be a method to unpool- to pull out one’s investment. This is where the stock market came in.

Think of this as an investor- you want liquidity for your investment, right? So, a good market is required. Like a good food market, you want your stock market to be clean, easy to get to, honest- the cleaner, the higher the price.

You then want people to manage the company so it makes money, and the value increases. The better managed, the more the value. And you want economic conditions such that the value increases. If you sell potatoes or soup, perhaps a bad economy would be best for you, but for most companies this means a vibrant and growing economy. And as their stock wealth increases, their borrowing capacity increases, their family’s livng standard can increase, and they can have more to give away. It should be obvious why shareholders want a higher stock market.

So, why do non-shareholders care about a stock price? Because, they may have a good idea sometime, and want it financed. And the better the market (cleaner, accessible, honest), the better their odds of higher prices, which translates to higher prices today. So they should want a good market, too.

Who wants lower markets? People without good ideas they need to finance, but with money who want to get ownership cheaper. Or short sellers, who buy high and hope to sell low. Or the few who want to constrain/fix the money supply and see lower prices as more affordable. The problem is that human psychology and culture doesn’t reward those whose claim to fame is “I’ll do the least worst”- we equate growth and progress with larger numbers, not smaller.

It’s true stock prices of publicly traded firms are more subject to traders daily actions and news, and that is what you see.

To help you put stock prices in perspective, look at privately held companies such as Mars,Inc. Their stock do not trade in the stock exchanges so there is no daily quotation for the company’s market value.

Absent the stock market and despite current volatility—

If you were interested in making an offer to buy the company whole or in part to it’s current owners, you would go trough what M & A teams do to value the company before making a bid:

Determine its net worth, assess its management, market position and future prospects, etc. This is where your MBA in finance will help you.

You are, however, getting close to the heart of the matter, namely that established financial facts as well as personal opinion and convictions make the wheels go ’round.

That, coupled with innate investor greed and the willingness to gamble, makes the stock market one of the most perfect examples of supply and demand.

What makes the market go up, whether in New York or London, Hong Kong or Mumbai ? More buyers than sellers, as well as the reverse.

It is the reluctance to factually assess risk that is more responsible than actualy illiquidity that is at the heart of the current financial crisis.