I'm confused when people say the stock market has nothing to do with the economy? I mean, people are losing some of the their savings, and if a company's worth plummets, does that not effect the company?
It is not as direct a connection as you are thinking.
I have a set of assets.
Lets say I own whatever improvements I made on the property I lease. I also own books that I had created by using a 3rd party printing company. I plan to sell them for more than they cost to have printed.
I own the materials in the book as I had them researched; I only told the printing company to print my research. I have some ownership over the content in the book, but I don't really have an assigned value to it. I could feasibly imagine a value based off of how much it cost to pay workers to research the content, but that is all very judgmental. Because of this, I don't really record the research I do as an asset; I only count it as an expense I previously had some time ago.
I have loans outstanding with a bank that I used to acquire the cash to pay for the lease improvements I mentioned above, as well as the books (inventory) and employee salaries (compensation) I mentioned above.
I also some years ago issued common stock in my Company. You came to an assessment of how much my company was worth based off of what I promised you in dividends, as well as what you thought I could do when reinvesting the money I borrowed and got from you over and over. I promised you growth, dividends, and a return for essentially taking your money from you.
Now I have used your money, as well as the money I made from buying and then selling books, to buy and sell more books. I did research with the money you gave me that is now worth something, but isn't strictly an 'asset'. (if someone were to purchase my company or purchase the right to use my research, suddenly it would have a value to the purchaser). Therefore, my company is worth some value greater than strictly just its assets. However, whatever that value is doesn't impact how I function. You can come to whatever determination you want. If you sold that share in my company to someone else, it could be for a higher or lower value. That sale of that share doesn't impact me on a day to day basis typically. The money from you selling the share doesn't come to me. It goes between you and hte person you sell it to. I got your money long ago when you purchased the share initially from me (an initial public offering).
The sale of that share is meant to reflect reality; you decided based off of my future potential for growth and dividends, and the level of riskiness of my business, whether the value of your share has increased or decreased. The person looking to buy the share has done this same analysis. You come to a consensus on what the value is, and it has nothing to do with my day to day operations.
Also, equities are meant to represent future potential more than historical factors. It is the investment community's view of how the company will perform in the future.
Now there are small reasons why what I state isn't 100% true (treasury shares, debt covenants, later public offerings, etc), but ultimately the above is more important to understand.
We also can get into the difference between a good company and a good equity, but that also isn't worth digging into.
