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Somewhat tangential - how exactly me buying, let's say, stock of AMZN, puts value where it is most effective way (in the pocket of another AMZN stock seller, an
by hippich 9y ago
Somewhat tangential - how exactly me buying, let's say, stock of AMZN, puts value where it is most effective way (in the pocket of another AMZN stock seller, and not AMZN itself)?
- rat_1234 9y agoFair point! I think a way to look at it is what earnings multiples companies trade at signals to companies how much money they can raise in an IPO or follow on equity issues. For example, if Boeing is trading at 5X EBITDA then it signals to other aerospace and defense companies that they can expect to raise capital at a similar multiple. It's indirect, but it still provides a service: creating a predictable, liquid securities market which firms can use to raise capital.
- ak217 9y agoYou buying stock constitutes market liquidity. Market liquidity allows companies to do follow-on offerings, buybacks, and preferential rate debt financing (often with stock option collateral) at their leisure. It also allows companies to compensate their employees in stock options - I don't know the best financial term for this, but it creates employee goodwill. Companies periodically restructure their stock option pools (in almost the same dilutive manner as follow-on offerings) so they can continue to offer employees more stock options.