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Buying stock on the open market also doesn't create any job for anyone, it just transfers wealth to the hands of the seller. Basically, unless you are investin

Buying stock on the open market also doesn't create any job for anyone, it just transfers wealth to the hands of the seller. Basically, unless you are investing in an IPO, the company doesn't see a dime from the ongoing trading of it's stock. So the vast majority of investors are not creating jobs by buying stock. Similarly, most bond investors are not buying new issue bonds, they are buying bonds from the current owner of the bond.

cm2187 10y ago
I am not sure that is true as even for stocks, on the other side you have asset managers, hedge funds or insurance companies who participate both in the primary and secondary markets. Of course, you will have similar bubbles forming in stocks than you have in property. But overall it is a way more productive investment. Bonds barely trade on the secondary markets. When you invest into a fund that buys bond, it's pretty much 100% primary market (i.e. new issuances).
- camiller 10y ago
  For property you still have ongoing maintenance to pay for, and real estate agents, and the title company, etc. so there are jobs created due to the buying, selling, and ownership of property. If I by 100 shares of IBM in my self-directed account at Charles Schwab there likely isn't a single human being involved in that transaction after I click the buy button. Granted, somebody wrote the code that drives all of that.
  - cm2187 10y ago
    But this maintenance would happen anyway whether you own or rent.
    - alistairSH 10y ago
      At a much slower rate. If the paint in my personal home starts peeling, my incentive to fix it is higher - I don't want to walk down the hall and see peeling paint. If the paint in a corporate-owned tenement starts leaking, what incentive does the corporation have to repair it? They will do the bare minimum to prevent me suing them for breach of contract. A tenant is unlikely to sue over peeling paint. And they actively discouraged from re-painting, as they will likely lose their security deposit should they paint in any color other than generic off-white.
      - AjithAntony 10y ago
        > If the paint in my personal home starts peeling, my incentive to fix it is higher - I don't want to walk down the hall and see peeling paint. > If the paint in a corporate-owned tenement starts leaking LOL. It's the opposite effect. If I own the place, and The paint is peeling, and I have to fix it... then maybe I'll just live with it until it gets worse, or I plan to sell. If it was a rental, then I complain to the landlord to fix.
        alistairSH 10y ago
        Are you married? Own a house? ;) What incentive does the landlord have to fix minor problems? It costs you more to move/sue than it costs him to sit on the problem.
        AjithAntony 10y ago
        Yeah, not married, so there is not that particular stakeholder motivating cosmetic repairs. As a landlord I want my current and future tenants to respect the valuable asset I have entrusted to them and maintain a good relationship. Fixing the little things is important in a "broken windows theory" way. "the cobbler's children have no shoes"
philipodonnell 10y ago
In isolation, sure. In aggregate though, increasing demand raises the value of stock, which reduces borrowing costs and encourages companies to expand, which can sometimes create jobs. Not just stock: companies are constantly comparing alternative sources of capital. Any increase in demand from investors for any particular source of capital (bonds, stocks, loans, etc...) will tend to make that capital available at a lower cost to the company. I have not thought about whether aggregate increases in the demand for housing have the same positive effect on firms, though you could argue that increasing housing values creates home equity and the mortgage interest deduction encourages homeowners to borrow against that new equity and invest the proceeds in ways that will generate a higher return than the interest rate - marginal tax rate, such as stocks. But that happens a lot in economics, many seemingly conflicting forces can lead to the same effect.
- tw04 10y ago
  How do you figure the value of stock increasing reduces borrowing costs? I don't know of ANY financial institution that bases the interest rate of a loan on the value of a company's stock. It is, in every case I've seen, based on their credit rating. You could have a stock that's through the roof, but if you don't pay your bills on time that means absolutely nothing to me as a financial institution. On the flip side your stock could be in the gutter, but if you are financially viable and pay your bills on time, I couldn't care less. Generally speaking there is a correlation between stock price and "health of the company", but not always. Finally - stock price increasing creates jobs???? Source? I have never, in my life, heard of a company of any size hiring people because their stock went up. That's the most ludicrous thing I've ever heard.
deleted 10y ago
[deleted]
linkregister 10y ago
Companies often issue common stock long after IPO. Tesla famously did this earlier this year in order to finance an accelerated release schedule for the Model 3. Companies undergoing temporary financial trouble also issue common stock. The major banks issued large amounts of common stock during the 2008 financial crisis. Most have not yet repurchased the issued stock. Technically and in the extremely specific case, yes, buying stock on the market doesn't create jobs for anyone. However, the liquidity of stock in the aggregate is one part of the confidence of the financial system. Upon IPO, buyers of the stock need to know they can sell their stock on the market after it fulfills their objectives.
- camiller 10y ago
  Yeah, I purposely ignored the edge cases of selling treasury stock or existing companies making new issues. An existing company making a new issue is kind of unusual because it dilutes the value of existing shares which is harmful to existing shareholders. generally a bad thing. Selling Treasury stock does get new cash in the hands of the company, but usually that was because at some point the company had excess cash and invested it in it's own shares in the form of a buyback, less often the company is still holding shares from it's own IPO. It later needs the cash and re-sells the stock, hopefully at a better price. I would argue though that the day to day trading of common stock on the open market is the more general rule not a "extremely specific case". Normally, if I go to make a trade in my account, it is not a new issue and would be a coincidence if it was at the time a company was selling treasury stock. no argument in stock liquidity being a measure of confidence, but not really to the point I was addressing.
  - linkregister 10y ago
    I agree with everything you said. I wanted to mention liquidity because I (wrongfully) thought your post implied it wasn't particularly important; is indeed paramount for the stock market to work at all.
blibble 10y ago
if there was no secondary market people likely wouldn't buy into the IPO, as there would be no way to get rid of the stock later so it clearly adds value to the original seller
- camiller 10y ago
  Yes, but that wasn't the point.

cm2187 10y ago

I am not sure that is true as even for stocks, on the other side you have asset managers, hedge funds or insurance companies who participate both in the primary and secondary markets. Of course, you will have similar bubbles forming in stocks than you have in property. But overall it is a way more productive investment. Bonds barely trade on the secondary markets. When you invest into a fund that buys bond, it's pretty much 100% primary market (i.e. new issuances).

camiller 10y ago
For property you still have ongoing maintenance to pay for, and real estate agents, and the title company, etc. so there are jobs created due to the buying, selling, and ownership of property. If I by 100 shares of IBM in my self-directed account at Charles Schwab there likely isn't a single human being involved in that transaction after I click the buy button. Granted, somebody wrote the code that drives all of that.
- cm2187 10y ago
  But this maintenance would happen anyway whether you own or rent.
  - alistairSH 10y ago
    At a much slower rate. If the paint in my personal home starts peeling, my incentive to fix it is higher - I don't want to walk down the hall and see peeling paint. If the paint in a corporate-owned tenement starts leaking, what incentive does the corporation have to repair it? They will do the bare minimum to prevent me suing them for breach of contract. A tenant is unlikely to sue over peeling paint. And they actively discouraged from re-painting, as they will likely lose their security deposit should they paint in any color other than generic off-white.
    - AjithAntony 10y ago
      > If the paint in my personal home starts peeling, my incentive to fix it is higher - I don't want to walk down the hall and see peeling paint. > If the paint in a corporate-owned tenement starts leaking LOL. It's the opposite effect. If I own the place, and The paint is peeling, and I have to fix it... then maybe I'll just live with it until it gets worse, or I plan to sell. If it was a rental, then I complain to the landlord to fix.
      - alistairSH 10y ago
        Are you married? Own a house? ;) What incentive does the landlord have to fix minor problems? It costs you more to move/sue than it costs him to sit on the problem.
        AjithAntony 10y ago
        Yeah, not married, so there is not that particular stakeholder motivating cosmetic repairs. As a landlord I want my current and future tenants to respect the valuable asset I have entrusted to them and maintain a good relationship. Fixing the little things is important in a "broken windows theory" way. "the cobbler's children have no shoes"

philipodonnell 10y ago

In isolation, sure. In aggregate though, increasing demand raises the value of stock, which reduces borrowing costs and encourages companies to expand, which can sometimes create jobs. Not just stock: companies are constantly comparing alternative sources of capital. Any increase in demand from investors for any particular source of capital (bonds, stocks, loans, etc...) will tend to make that capital available at a lower cost to the company. I have not thought about whether aggregate increases in the demand for housing have the same positive effect on firms, though you could argue that increasing housing values creates home equity and the mortgage interest deduction encourages homeowners to borrow against that new equity and invest the proceeds in ways that will generate a higher return than the interest rate - marginal tax rate, such as stocks. But that happens a lot in economics, many seemingly conflicting forces can lead to the same effect.

tw04 10y ago
How do you figure the value of stock increasing reduces borrowing costs? I don't know of ANY financial institution that bases the interest rate of a loan on the value of a company's stock. It is, in every case I've seen, based on their credit rating. You could have a stock that's through the roof, but if you don't pay your bills on time that means absolutely nothing to me as a financial institution. On the flip side your stock could be in the gutter, but if you are financially viable and pay your bills on time, I couldn't care less. Generally speaking there is a correlation between stock price and "health of the company", but not always. Finally - stock price increasing creates jobs???? Source? I have never, in my life, heard of a company of any size hiring people because their stock went up. That's the most ludicrous thing I've ever heard.

deleted 10y ago

[deleted]

linkregister 10y ago

Companies often issue common stock long after IPO. Tesla famously did this earlier this year in order to finance an accelerated release schedule for the Model 3. Companies undergoing temporary financial trouble also issue common stock. The major banks issued large amounts of common stock during the 2008 financial crisis. Most have not yet repurchased the issued stock. Technically and in the extremely specific case, yes, buying stock on the market doesn't create jobs for anyone. However, the liquidity of stock in the aggregate is one part of the confidence of the financial system. Upon IPO, buyers of the stock need to know they can sell their stock on the market after it fulfills their objectives.

camiller 10y ago
Yeah, I purposely ignored the edge cases of selling treasury stock or existing companies making new issues. An existing company making a new issue is kind of unusual because it dilutes the value of existing shares which is harmful to existing shareholders. generally a bad thing. Selling Treasury stock does get new cash in the hands of the company, but usually that was because at some point the company had excess cash and invested it in it's own shares in the form of a buyback, less often the company is still holding shares from it's own IPO. It later needs the cash and re-sells the stock, hopefully at a better price. I would argue though that the day to day trading of common stock on the open market is the more general rule not a "extremely specific case". Normally, if I go to make a trade in my account, it is not a new issue and would be a coincidence if it was at the time a company was selling treasury stock. no argument in stock liquidity being a measure of confidence, but not really to the point I was addressing.
- linkregister 10y ago
  I agree with everything you said. I wanted to mention liquidity because I (wrongfully) thought your post implied it wasn't particularly important; is indeed paramount for the stock market to work at all.

blibble 10y ago

if there was no secondary market people likely wouldn't buy into the IPO, as there would be no way to get rid of the stock later so it clearly adds value to the original seller

camiller 10y ago
Yes, but that wasn't the point.