What factors determine the value of stock? What do you think is the most important factor and why?
The value of a stock is what investors are willing to pay for it. They are usually willing to pay a high price for a stock that they feel has a good potential to make high earnings in the near future. A prime example is Google which has tripled its price in three years. Investors know that this company has continuously increased its earnings in the past and will continue to do so in the future. On the other hand, Ford's stock price has fallen by more than half in the last three years. Investors don't have much confidence in this country.
Investors aren't always right, however. In the late 90s, they were willing to pay very high prices for tech stocks, believing they had a good future. We watched one stock go from about $10 a share in 1998 to $100 a share about 2000 -- and then drop to about $20 in the next couple of years -- where it remains today.
Wise investors buy shares of companies that are well-managed, have a history of healthy earnings, and have reasonable expectations for a profitable future.