What happens when a companies stock is all bought up and no one wants to sell?
Winston asks:
For instance, I have a small IPO, offering 3,000 stocks. My mom buys 1,000 shares, and my other two friends buy 2,000 shares. What happens when John Doe requests to buy my companies stock from his broker at this point?
For instance, I have a small IPO, offering 3,000 stocks. My mom buys 1,000 shares, and my other two friends buy 2,000 shares. What happens when John Doe requests to buy my companies stock from his broker at this point?
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The laws of supply & demand go into effect — eventually your mom and friends will sell — once the price is right. One John Doe isn’t enough to influence the supply & demand but if you get hundreds or thousands the price will go up.
If nobody wants to sell, the bidding price of those shares continues to rise (if a purchaser is willing to pay more) until somebody sells them. A company can also issue more stock to raise additional capital if needed but that dilutes the current ownership.
To humor your example, your broker will quote John Doe a price at which either you, your Mom or your friends ARE willing to sell (this is called the “ask”) and if John Doe is still interested, he gets his stock!
In real life, companies always keep a certain number of shares themselves to improve “liquidity” to prevent exactly what you are asking about… if you think about it, your 3000 shares are just worthless paper if there is no market for them! Those worthless scraps of paper are what comprise the vast majority of the “penny stock” market…
It doesn’t necessarily work that way. Remember, if it’s publicly traded, market makers and/or specialists will usually have stock to trade so that they can facilitate trades. Liquidity can affect the behavior of a stock. Are you willing to pay more for stock that is very liquid or the opposite? If you really want a stock, I think you’ll pay a premium for it (more than market). Also, what company would offer only 3000 shares, and at what price? Either this company’s stock is very highly priced, or it’s not worth much at all. Companies have to go through an investment bank, which usually keeps some shares for its own investors or for its own house account (market makers/specialists).
mom and friend get to negotiate with john for what price they want to sell their stock at the lowest asker wins