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The only time you're actually investing in the company is when they IPO. That's what the market is primarily for, getting capital to companies that need it; af

The only time you're actually investing in the company is when they IPO. That's what the market is primarily for, getting capital to companies that need it; after that however, the market also has to allow people to trade those shares with speculators otherwise there's no way to exit your investment. This secondary market is the other function of the market (what you just called investing in the flow of money in and out of a position). Both are necessary. Traders have always played the short term ups and downs, that's what makes them traders rather than investors and without them, there wouldn't be liquidity to exit your positions.

dragonwriter 11y ago
> The only time you're actually investing in the company is when they IPO. Well, no, anytime the company is selling shares you can invest in the company rather than the secondary market. The IPO is obviously the first such event, but it isn't necessarily the only such event.
- gnaritas 11y ago
  Fair point, and true.
- eru 11y ago
  Also, if there was no secondary market, people would be much less likely to buy at IPO and other times the company sells shares.
  - gnaritas 11y ago
    Right, but I did mention that.
kasey_junk 11y ago
> that's what the market is primarily for, getting capital to companies that need it; Personally, I believe that is incorrect. The amount of market activity related to getting capital to companies is dwarfed by other activity. As data points: - Commodities markets don't allocate capital to companies (or farmers or whatever) at all. - Most new stock sales (IPO or otherwise) happen outside of the public markets first, and are allocated to a minority of the market participants. I think a much better way to think of the markets is as primarily about pricing risk. That this risk assessment function happens to provide a good way to allocate capital to companies is a by product.
- gnaritas 11y ago
  You should perhaps read more than the first two sentences before replying. > This secondary market is the other function of the market (what you just called investing in the flow of money in and out of a position). Both are necessary. I clearly addressed that markets have more than one function.
  - kasey_junk 11y ago
    I was reacting to the word primary. I think that is a common (especially on HN) misconception. The markets make more sense when you don't think of them as mechanisms to fund companies, and do think of them as ways to trade risk and liquidity. I'm not convinced that the capital allocation component of the markets is even as you say "necessary". You could easily envision the markets chugging along fine without allowing any direct sale of equity to the markets. That is some intermediary would be required to buy the equity from the company as it became available and in turn could then sell that equity into the markets. We are almost to that point already.
Ericson2314 11y ago
> after that however, the market also has to allow people to trade those shares with speculators otherwise there's no way to exit your investment You are forgetting about dividends.

dragonwriter 11y ago

> The only time you're actually investing in the company is when they IPO. Well, no, anytime the company is selling shares you can invest in the company rather than the secondary market. The IPO is obviously the first such event, but it isn't necessarily the only such event.

gnaritas 11y ago
Fair point, and true.
eru 11y ago
Also, if there was no secondary market, people would be much less likely to buy at IPO and other times the company sells shares.
- gnaritas 11y ago
  Right, but I did mention that.

kasey_junk 11y ago

> that's what the market is primarily for, getting capital to companies that need it; Personally, I believe that is incorrect. The amount of market activity related to getting capital to companies is dwarfed by other activity. As data points: - Commodities markets don't allocate capital to companies (or farmers or whatever) at all. - Most new stock sales (IPO or otherwise) happen outside of the public markets first, and are allocated to a minority of the market participants. I think a much better way to think of the markets is as primarily about pricing risk. That this risk assessment function happens to provide a good way to allocate capital to companies is a by product.

gnaritas 11y ago
You should perhaps read more than the first two sentences before replying. > This secondary market is the other function of the market (what you just called investing in the flow of money in and out of a position). Both are necessary. I clearly addressed that markets have more than one function.
- kasey_junk 11y ago
  I was reacting to the word primary. I think that is a common (especially on HN) misconception. The markets make more sense when you don't think of them as mechanisms to fund companies, and do think of them as ways to trade risk and liquidity. I'm not convinced that the capital allocation component of the markets is even as you say "necessary". You could easily envision the markets chugging along fine without allowing any direct sale of equity to the markets. That is some intermediary would be required to buy the equity from the company as it became available and in turn could then sell that equity into the markets. We are almost to that point already.

Ericson2314 11y ago

> after that however, the market also has to allow people to trade those shares with speculators otherwise there's no way to exit your investment You are forgetting about dividends.