5 ms·

What allocation? After the first time it is sold, the stock being traded around provides zero resources to businesses.

hsk 9y ago
That's not the right way to look at it. People invest in an IPO in the first place because of the promise of liquidity down the line. If investors were told that they couldn't freely buy or sell shares after the first time it is sold, the IPO is going to do far worse. The ability to trade the stock around directly helps the company by making the IPO more successful. That's not even considering that the company could issue secondary offerings.
- OscarCunningham 9y ago
  So if I invest in Facebook now, I'm helping them by making it easier for them to raise money several years ago? In some kind of weird acausal way, because people then anticipated my actions now?
  - tome 9y ago
    No, you're helping pre-IPO companies raise money now.
  - ncallaway 9y ago
    > In some kind of weird acausal way, because people then anticipated my actions now? They didn't anticipate _your individual_ actions, but it's highly likely that the persons that bought into Facebook's IPO did expect that they would be able to sell the stock to _someone_ at a later date. So, yes, people anticipated your actions now (if you look at _your_ actions as the general actions of the crowd, instead of your individual actions)
  - gnode 9y ago
    If you invest in a stock with the intention of selling it later, rather than holding it forever to earn the dividends, your decision was motivated by the expectation that there will be a market for it in the future. By buying Facebook stock now, you're fulfilling that expectation of earlier investors, which motivated them to provide Facebook's initial funds.
dragandj 9y ago
Not quite. At the bare minimum, the existence of markets and liquidity they provide is of tremendous value. Otherwise, how would those large corporations be able to acquire capital in the first place?
- EliRivers 9y ago
  There's always the bond market - loans, effectively. They could also sell non-transferable ownership; effectively a stock that couldn't be sold on. You get dividends and a say in how the company is run. That would drive stockholders to seek long-term sustainable profits rather than share price spikes, which sounds like a pretty good thing.
autokad 9y ago
stock bonuses are a huge part of compensation, especially in tech
ringaroundthetx 9y ago
Yes and no, you buying the stock on the stock market does not give your money to the business. Liquidity along with higher prices along with improved business metrics, which provide perception and confidence to the market to promote higher prices, are used by the business to obtain cheaper financing and the employees of the business to also obtain access to credit based on their holdings of the stock. These are colloquially called resources to businesses.
fallingfrog 9y ago
I think the idea is that if the stock price goes up, then the company can issue new shares for a lot of cash if they need to invest in their business.

hsk 9y ago

That's not the right way to look at it. People invest in an IPO in the first place because of the promise of liquidity down the line. If investors were told that they couldn't freely buy or sell shares after the first time it is sold, the IPO is going to do far worse. The ability to trade the stock around directly helps the company by making the IPO more successful. That's not even considering that the company could issue secondary offerings.

OscarCunningham 9y ago
So if I invest in Facebook now, I'm helping them by making it easier for them to raise money several years ago? In some kind of weird acausal way, because people then anticipated my actions now?
- tome 9y ago
  No, you're helping pre-IPO companies raise money now.
- ncallaway 9y ago
  > In some kind of weird acausal way, because people then anticipated my actions now? They didn't anticipate _your individual_ actions, but it's highly likely that the persons that bought into Facebook's IPO did expect that they would be able to sell the stock to _someone_ at a later date. So, yes, people anticipated your actions now (if you look at _your_ actions as the general actions of the crowd, instead of your individual actions)
- gnode 9y ago
  If you invest in a stock with the intention of selling it later, rather than holding it forever to earn the dividends, your decision was motivated by the expectation that there will be a market for it in the future. By buying Facebook stock now, you're fulfilling that expectation of earlier investors, which motivated them to provide Facebook's initial funds.

dragandj 9y ago

Not quite. At the bare minimum, the existence of markets and liquidity they provide is of tremendous value. Otherwise, how would those large corporations be able to acquire capital in the first place?

EliRivers 9y ago
There's always the bond market - loans, effectively. They could also sell non-transferable ownership; effectively a stock that couldn't be sold on. You get dividends and a say in how the company is run. That would drive stockholders to seek long-term sustainable profits rather than share price spikes, which sounds like a pretty good thing.

autokad 9y ago

stock bonuses are a huge part of compensation, especially in tech

ringaroundthetx 9y ago

Yes and no, you buying the stock on the stock market does not give your money to the business. Liquidity along with higher prices along with improved business metrics, which provide perception and confidence to the market to promote higher prices, are used by the business to obtain cheaper financing and the employees of the business to also obtain access to credit based on their holdings of the stock. These are colloquially called resources to businesses.

fallingfrog 9y ago

I think the idea is that if the stock price goes up, then the company can issue new shares for a lot of cash if they need to invest in their business.