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A side note, and I'm really hoping someone can explain this. What benefit does the stock market provide to us? I understand investing in companies, but for me,

A side note, and I'm really hoping someone can explain this. What benefit does the stock market provide to us? I understand investing in companies, but for me, and I'll admit a completely naive person to this whole system, it seems to have taken an 'inbest in company with money to help them succeed', to a 'who cares let's just cut and run to make the best profit'. I'm perfectly willing to take a link to a great explanation at this point btw.

S_A_P 9y ago
Keep in mind that the stock market is only one part of the financial markets. There’s treasury (Tbill),forex, bond, metals, and derivatives of all of these(futures/swaps etc) and then other instruments used for hedging. All of these markets directly affect the movement of money all around the world. Also keep in mind that most trades are executed with a hedge in place to prevent losses. The market is rarely a case of bet a million on black trades. That said my knowledge is comes from knowing how energy and metals are traded.
deleted 9y ago
[deleted]
lmm 9y ago
Think about how something like, say, Heroku would look to someone outside the tech industry - so this is a company where people submit programs and they run them - not even on their own computers, but on Amazon's computers - and somehow that's something that makes a profit? There are lots of small intermediaries in finance, like in any industry. They make money because they provide services that others find valuable.
- marak830 9y ago
  I still don't understand. (this may be because I am not familiar with Heroku aside from hearing about it in passing). Thanks for trying though. Edit: I'm editing further to ask more Edit2: so you said that they make money because they provide services. What services could you offer when (from what I can see): Company A: wants investors. So promises them a portion of profit based on investment. I can't see any value from any other provider there. Now I may be wrong, and I'll admit straight off the bat I have * no idea * how it all works, but it seems to meet that there isn't any other value provided to the company, or to the initial investor aside from, buy these shares of the company, hold these shares, or I want to sell these shares.
  - lmm 9y ago
    It's worth emphasising that if you just want to invest in a company, modern markets let you do so in an unprecedentedly cheap way: you can usually buy or sell with a penny spread (not legally allowed to be tighter, which is a whole other rant) virtually instantly. If we're really talking about the pure "stock market" then at this point it's pretty much a commodified, low-margin utility business. I'll assume you meant the broader financial industry. At a simple level: investors might want to invest in a given company at any point on the risk/return curve, rather than just the one their stock or a particular bond issue is set at. They might want to invest in a particular sector rather than having a view on specific companies. They might want to invest in a company whose stocks are priced in a different currency from their own, but without exposing themselves to the currency movements. They might believe a particular sector will outperform the market without wanting to take a view on how the overall market will perform. They might have a big chunk of a commodity to sell in six months and want to spread out the sale according to whenever gets the best price. And all of these views do, ultimately, filter down and translate into concrete capital allocation in the real world: maybe a particular sector ends up hiring more people or building more factories because they have more capital, and the economy does better for everyone when capital is spent in the best way. (Of course it's possible for everyone to be wrong, but the basic idea that averaging out everyone's buying and selling results in our best guess for where the money should go seems sound). Of course mechanically you end up with a lot of intervening speculators - in between investor A who has a particular set of views about the market and company B that desires capital on particular terms, there might be dozens of intermediaries. But I see that as no different from the way that most real-world transactions are business-to-business - in between you buying a furniture cabinet and the people growing the wood or mining the metal there are dozens of intermediate suppliers, each with their own particular speciality, all adding a little bit of value.
    - marak830 9y ago
      What I see from this is a while bunch of hand waving to say that 'there are a whole bunch of people between you and x business', despite the fact you can directly purchase their shares(which they offered to gain temporary income to make purchases before their cash flow allowed). I still don't see a reason why these people between you and the business have any useful reason to exist. Unless for gambling, Wich as far as I can tell is what it is. (And I'm not talking about initial investment, I'm talking about people gambling o weather the value will go up or down). Ontop of all that, what benefit does it provide to the initial company if people are gambling if the value goes up or down by a few percent? That just seems like a different form of book making. Edit: You know upon second read, it seems there is so much hand waving to mitigate investor risk, that completely ignores the idea that you are purchasing a piece of a company, that really seems that the entire system is beibg rebuilt to keep certain people making money. If I want an investor to purchase 20% of my company. For 20% profit, why should any sort of bonds, currency devaluation come into fact. As far as I see it: you are directly purchasing a portion of my company. That is a share right? If the value goes up, assumably your dividend will increase. Otherwise it will decrease. What the value of my countries dollar happens, has no effect on the percentile of my company. All I can see is a lot of hand waving to make things different. Side note: I'd really like to see a logical reason for any of this. Edit to lostboys: I think the thread is too long and I can't directly respond, my apologies. Once the business sells a portion to investors, those portions can be resold. This I get, where all the shorting and everything else comes from, makes me wonder about the entire stock system. At what point is it not about the investment about the business, and gambling about how it will go in the future(eg shorting). That and the whole system akin to it, is the part that is making me wonder how it was ever allowed.
liotier 9y ago
> What benefit does the stock market provide to us ? Direct benefit: liquidity - whether you need to buy or to sell, you have a place where you'll find a counterpart quickly. Indirect benefit: information - just watching the bets lets you have an idea about how much people with skin in the game value things, letting you take better decisions about resources allocation.
- cm2187 9y ago
  And the benefit of liquidity is to reduce your risk. If you change your mind, need some cash quickly, or even simply want to know what the market thinks your stock is worth, you need liquidity. If you don't have observable and executable prices, you may struggle to find a buyer for that stock when you need it (delaying a home purchase or exposing you to future changes in market sentiment / health of the company) and will have no idea who to trust to tell you how much you should ask when you sell your position.
  - marak830 9y ago
    Liquidity, I'm sorry didn't you invest in that company? If you can find a buyer for that percentage, okay cool, but nothing about investing should revolve around if you need liquidity all of a sudden.
    - dagw 9y ago
      nothing about investing should revolve around if you need liquidity The knowledge that I can get out of my investment any time I want at the current market price makes me much more willing to invest in the first place. If I know that it can take several month to get out of an investment or that I have to sell at a discount to get a fast deal then I'm more likely to sit on more of my money in case I need it quickly.
      - Retric 9y ago
        In theory that's a big deal. In practice most people are looking at days to weeks to liquidate stock and that's not a big deal. As your holdings go up, into the billions, it can take months to years to unwind major investments without tanking the price. Further, having ~six months of living expenses outside of the market is considered prudent anyway. However, the reality is if the market disappeared today informal markets would quickly take it's place consider what happens to pre IPO stock.
lifebeyondfife 9y ago
At the very highest level, you have two groups of people: investors and businesses. Investors have capital, and want to see somebody produce something extra with that capital. The main variables are the size of the capital, and the risk profile the investor is prepared to accept. Businesses require funding to grow[1]. The main variables are the nature of the reparations, and the control they are willing to concede. The scale of the four dimensions above means that there is no one size fits method to transfer capital from investors to businesses and vice versa. For instance, Capital: $2 to $2bn; Risk: I'm prepared to lose it all, to I want guaranteed, fixed returns; Reparations: I'll pay 20% interest, to you can have non-negotiable dividend; Control: you can own debt, or you can have a seat on my board. The evolutionary nature of the finance industry has gone from age old future contracts ("I'll give you $100 next October for your crop of wheat") to other more exotic derivatives e.g. Snowball Swap. Even if you as an individual do not need complex options like that, you may invest in a 401k that does. [1]not limited to pure funding. Consider a manufacturer that makes a product that takes a year to make. If they sell to a foreign market, they cannot risk working and consuming raw materials for a year in one currency to be paid in another currency at the end of the order that varies. Thus, an FX Future gives the manufacturer the confidence to agree a deal and concentrate on the business fundamentals, not global currency markets.
- marak830 9y ago
  I see and almost understand what you are writing, but how does this help the original business. Say I'm business A. I'll offer a portion of my business (say 40%) with the offer that you will reap 40% of my profit. (Assuming one person pays in for that whole value).(edit: I offer this as the income will allow me to expand where as otherwise I'd have to wait longer depending on profit) At what point does almost anything else you mentioned help the business? Everything else seems likes gambling, imho, and I still can't wrap my head around why it's allowed.
  - maneesh 9y ago
    you can raise capital by selling more shares. This allows you, as a business, to not have to turn a profit and still be in business.
charlesdm 9y ago
In addition to what others have said: an opportunity to invest. There are plenty of great investment opportunities around, but not all can be had at the click of a button. It makes it easy for an investor living in France to invest in a US tech company.
- bildung 9y ago
  How would that work? The company doesn't get any money from you - it already sold its shares at the IPO.
  - thedufer 9y ago
    We wouldn't have to call it an Initial Public Offering if companies never sold shares in subsequent Public Offerings. Most trades don't have the company in question on the selling side, but some do, even after the IPO.
  - MandieD 9y ago
    But the future ease of trading said shares added to the price people were willing to pay for them at the IPO. Plus, for more established companies: the prospect of regular dividends. That's not as much of a thing as it used to be, though.
  - charlesdm 9y ago
    1. It offers owners and/or founders of the company liquidity, which is essentially why they started the company in the first place. Just because you own an amazing company doesn't mean you want to keep your entire net worth in a single stock. 2. I would buy Apple shares if I could sell them at a moments notice. I wouldn't if I couldn't. 3. A liquid investment is generally valued higher than an illiquid one. 4. A higher valuation means the company is able to raise funding from the market at a later stage, by selling additional equity (if required) -- this is relevant for the company.
whatok 9y ago
Might be good to start a thread on this rather than hijacking something tangentially related.
eru 9y ago
If there's an IPO of two otherwise identical companies, which one would you pay more for: - company A who's shares will be traded in a deep and liquid market, so you can get rid of them whenever you need money (eg for unforeseen circumstances) - company B who's shares can not be sold easily afterwards? If the answer is A, you see how the secondary market can help the first issuer reap a higher price, thus helping the company succeed. By the way, you are not alone. I was asking myself very similar questions a while ago. Mostly in the form of: "why would a company's management ever care about share price?" (Outside of when it's trying to raise more capital.)
- mi100hael 9y ago
  A company's management cares about share price (and sometimes dividends) because that's what the owners of the company (shareholders) care about. If the directors of a publicly traded company don't care about share price, then the shareholders will vote in new management that does. At the same time, share price isn't something management can directly change. They do so by running the business well so that it generates profits and growth. So the question "why would a company's management ever care about share price?" can be answered "because it's usually an indicator of whether or not they're doing a good job and provides job security."
  - eru 9y ago
    That's basically the answer I arrived at as well. Yes. For me the topic's related to the grandparent comment's question about 'why should the company (or its management) care about the stock market'?
ThomPete 9y ago
Do you mean to society or to the companies onbthecstock market?
Tyrek 9y ago
Liquidity. The fundamental problem with pre-financial markets is the inability of those with money (investors, both large and small) to connect effectively with those who need money (business owners, etc). Often, you needed some sort of personal connection in order to invest or seek investment from others. The financial markets provide a more efficient way to connect the two parties, based on mutually accepted standards (financial statements, public disclosures, etc), which forms the basis of public offerings. Once the stock has been released to the public, the market remains a valuable tool for the market to determine price, both among investors and for the company (buybacks and additional offerings primarily). And this is just a simplified model of the equity markets. Add debt, derivatives, FX and various futures, and it gets more complicated.
cujic9 9y ago
The "explain like I'm 5" version, partly to answer you, and partly as a clarifying exercise for myself. In a market, you trade dollars for other valuable things. In a stock market, you trade dollars for stocks. Why is a stock valuable? It represents a small piece of a company. If you bought up all the pieces of a company, you would own the entire company. But most people can't buy an entire company, so they buy small pieces of a company instead. Why would you want to trade dollars for a small piece of a company? A few reasons: 1. Because a company owns valuable assets, and if you own part of a company, then you own a part of those valuable assets. 2. Because a company earns money, and if you own part of a company, then you get some of that money. (Either directly as a dividend, or indirectly as more your shares gain in value.) Think about it: if you own part of a company, then for some small fraction of the day, every single person in that company is working for YOU. YOU get the fruits of their labors for that fraction of the day. If you do this with enough companies, then you can quit your job. 3. Because a company makes decisions, and if you own part of the company, then you get to vote on how those decisions are made. 4. Because dollars become less valuable over time, by about 2% per year, assuming that the economy is operating as planned. (Inflation.)
sailfast 9y ago
Stock markets exist to allow multiple people to invest in a company which allows for spreading risk for the venture. The price of the shares reflects the underlying view of the price of the risk in buying a stake in the company, in addition to the outright value of the firm / venture. Clear, transparent information about these prices and the ability to buy and sell this risk reduces overall costs to the economy for operating these ventures, greatly increases overall liquidity in the market, and overall greatly lowers overall costs and provides much more ready access to capital for ventures.
splintercell 9y ago
If read fiction then I recommend reading 'Time will run back' by Henry Hazlitt[1]. It explains the emergence of consumer goods market and stock markets beautifully by starting from a 1984 style society without any private goods (and no memory of Capitalism) and an open-minded dictator. 1. https://www.amazon.com/Time-Will-Back-Henry-Hazlitt/dp/1610160258 https://www.amazon.com/Time-Will-Back-Henry-Hazlitt/dp/16101...
drcode 9y ago
I short, an asset (whether a stock, a house, or a bar of gold) only has any meaningful economic value if you can actually sell it in exchange for traditional currency. Stock markets make it easy to sell your stocks- If you can't sell a stock it's just a useless piece of paper.
- boxy310 9y ago
  Further: before stock markets had a relatively clear bid-ask price range, everyday people would treat stocks as the same as paper currency (which was also relatively new at the time). This led to inflationary bubbles and crashes. The John Law Mississippi Company bubble in early 18th century France caused a significant economic crash, which exacerbated the economic situation leading up to the French Revolution a good 70 years later.
turk184 9y ago
Access to capital in a capitalist economy isn't important?

S_A_P 9y ago

Keep in mind that the stock market is only one part of the financial markets. There’s treasury (Tbill),forex, bond, metals, and derivatives of all of these(futures/swaps etc) and then other instruments used for hedging. All of these markets directly affect the movement of money all around the world. Also keep in mind that most trades are executed with a hedge in place to prevent losses. The market is rarely a case of bet a million on black trades. That said my knowledge is comes from knowing how energy and metals are traded.

deleted 9y ago

[deleted]

lmm 9y ago

Think about how something like, say, Heroku would look to someone outside the tech industry - so this is a company where people submit programs and they run them - not even on their own computers, but on Amazon's computers - and somehow that's something that makes a profit? There are lots of small intermediaries in finance, like in any industry. They make money because they provide services that others find valuable.

marak830 9y ago
I still don't understand. (this may be because I am not familiar with Heroku aside from hearing about it in passing). Thanks for trying though. Edit: I'm editing further to ask more Edit2: so you said that they make money because they provide services. What services could you offer when (from what I can see): Company A: wants investors. So promises them a portion of profit based on investment. I can't see any value from any other provider there. Now I may be wrong, and I'll admit straight off the bat I have * no idea * how it all works, but it seems to meet that there isn't any other value provided to the company, or to the initial investor aside from, buy these shares of the company, hold these shares, or I want to sell these shares.
- lmm 9y ago
  It's worth emphasising that if you just want to invest in a company, modern markets let you do so in an unprecedentedly cheap way: you can usually buy or sell with a penny spread (not legally allowed to be tighter, which is a whole other rant) virtually instantly. If we're really talking about the pure "stock market" then at this point it's pretty much a commodified, low-margin utility business. I'll assume you meant the broader financial industry. At a simple level: investors might want to invest in a given company at any point on the risk/return curve, rather than just the one their stock or a particular bond issue is set at. They might want to invest in a particular sector rather than having a view on specific companies. They might want to invest in a company whose stocks are priced in a different currency from their own, but without exposing themselves to the currency movements. They might believe a particular sector will outperform the market without wanting to take a view on how the overall market will perform. They might have a big chunk of a commodity to sell in six months and want to spread out the sale according to whenever gets the best price. And all of these views do, ultimately, filter down and translate into concrete capital allocation in the real world: maybe a particular sector ends up hiring more people or building more factories because they have more capital, and the economy does better for everyone when capital is spent in the best way. (Of course it's possible for everyone to be wrong, but the basic idea that averaging out everyone's buying and selling results in our best guess for where the money should go seems sound). Of course mechanically you end up with a lot of intervening speculators - in between investor A who has a particular set of views about the market and company B that desires capital on particular terms, there might be dozens of intermediaries. But I see that as no different from the way that most real-world transactions are business-to-business - in between you buying a furniture cabinet and the people growing the wood or mining the metal there are dozens of intermediate suppliers, each with their own particular speciality, all adding a little bit of value.
  - marak830 9y ago
    What I see from this is a while bunch of hand waving to say that 'there are a whole bunch of people between you and x business', despite the fact you can directly purchase their shares(which they offered to gain temporary income to make purchases before their cash flow allowed). I still don't see a reason why these people between you and the business have any useful reason to exist. Unless for gambling, Wich as far as I can tell is what it is. (And I'm not talking about initial investment, I'm talking about people gambling o weather the value will go up or down). Ontop of all that, what benefit does it provide to the initial company if people are gambling if the value goes up or down by a few percent? That just seems like a different form of book making. Edit: You know upon second read, it seems there is so much hand waving to mitigate investor risk, that completely ignores the idea that you are purchasing a piece of a company, that really seems that the entire system is beibg rebuilt to keep certain people making money. If I want an investor to purchase 20% of my company. For 20% profit, why should any sort of bonds, currency devaluation come into fact. As far as I see it: you are directly purchasing a portion of my company. That is a share right? If the value goes up, assumably your dividend will increase. Otherwise it will decrease. What the value of my countries dollar happens, has no effect on the percentile of my company. All I can see is a lot of hand waving to make things different. Side note: I'd really like to see a logical reason for any of this. Edit to lostboys: I think the thread is too long and I can't directly respond, my apologies. Once the business sells a portion to investors, those portions can be resold. This I get, where all the shorting and everything else comes from, makes me wonder about the entire stock system. At what point is it not about the investment about the business, and gambling about how it will go in the future(eg shorting). That and the whole system akin to it, is the part that is making me wonder how it was ever allowed.

liotier 9y ago

> What benefit does the stock market provide to us ? Direct benefit: liquidity - whether you need to buy or to sell, you have a place where you'll find a counterpart quickly. Indirect benefit: information - just watching the bets lets you have an idea about how much people with skin in the game value things, letting you take better decisions about resources allocation.

cm2187 9y ago
And the benefit of liquidity is to reduce your risk. If you change your mind, need some cash quickly, or even simply want to know what the market thinks your stock is worth, you need liquidity. If you don't have observable and executable prices, you may struggle to find a buyer for that stock when you need it (delaying a home purchase or exposing you to future changes in market sentiment / health of the company) and will have no idea who to trust to tell you how much you should ask when you sell your position.
- marak830 9y ago
  Liquidity, I'm sorry didn't you invest in that company? If you can find a buyer for that percentage, okay cool, but nothing about investing should revolve around if you need liquidity all of a sudden.
  - dagw 9y ago
    nothing about investing should revolve around if you need liquidity The knowledge that I can get out of my investment any time I want at the current market price makes me much more willing to invest in the first place. If I know that it can take several month to get out of an investment or that I have to sell at a discount to get a fast deal then I'm more likely to sit on more of my money in case I need it quickly.
    - Retric 9y ago
      In theory that's a big deal. In practice most people are looking at days to weeks to liquidate stock and that's not a big deal. As your holdings go up, into the billions, it can take months to years to unwind major investments without tanking the price. Further, having ~six months of living expenses outside of the market is considered prudent anyway. However, the reality is if the market disappeared today informal markets would quickly take it's place consider what happens to pre IPO stock.

lifebeyondfife 9y ago

At the very highest level, you have two groups of people: investors and businesses. Investors have capital, and want to see somebody produce something extra with that capital. The main variables are the size of the capital, and the risk profile the investor is prepared to accept. Businesses require funding to grow[1]. The main variables are the nature of the reparations, and the control they are willing to concede. The scale of the four dimensions above means that there is no one size fits method to transfer capital from investors to businesses and vice versa. For instance, Capital: $2 to $2bn; Risk: I'm prepared to lose it all, to I want guaranteed, fixed returns; Reparations: I'll pay 20% interest, to you can have non-negotiable dividend; Control: you can own debt, or you can have a seat on my board. The evolutionary nature of the finance industry has gone from age old future contracts ("I'll give you $100 next October for your crop of wheat") to other more exotic derivatives e.g. Snowball Swap. Even if you as an individual do not need complex options like that, you may invest in a 401k that does. [1]not limited to pure funding. Consider a manufacturer that makes a product that takes a year to make. If they sell to a foreign market, they cannot risk working and consuming raw materials for a year in one currency to be paid in another currency at the end of the order that varies. Thus, an FX Future gives the manufacturer the confidence to agree a deal and concentrate on the business fundamentals, not global currency markets.

marak830 9y ago
I see and almost understand what you are writing, but how does this help the original business. Say I'm business A. I'll offer a portion of my business (say 40%) with the offer that you will reap 40% of my profit. (Assuming one person pays in for that whole value).(edit: I offer this as the income will allow me to expand where as otherwise I'd have to wait longer depending on profit) At what point does almost anything else you mentioned help the business? Everything else seems likes gambling, imho, and I still can't wrap my head around why it's allowed.
- maneesh 9y ago
  you can raise capital by selling more shares. This allows you, as a business, to not have to turn a profit and still be in business.

charlesdm 9y ago

In addition to what others have said: an opportunity to invest. There are plenty of great investment opportunities around, but not all can be had at the click of a button. It makes it easy for an investor living in France to invest in a US tech company.

bildung 9y ago
How would that work? The company doesn't get any money from you - it already sold its shares at the IPO.
- thedufer 9y ago
  We wouldn't have to call it an Initial Public Offering if companies never sold shares in subsequent Public Offerings. Most trades don't have the company in question on the selling side, but some do, even after the IPO.
- MandieD 9y ago
  But the future ease of trading said shares added to the price people were willing to pay for them at the IPO. Plus, for more established companies: the prospect of regular dividends. That's not as much of a thing as it used to be, though.
- charlesdm 9y ago
  1. It offers owners and/or founders of the company liquidity, which is essentially why they started the company in the first place. Just because you own an amazing company doesn't mean you want to keep your entire net worth in a single stock. 2. I would buy Apple shares if I could sell them at a moments notice. I wouldn't if I couldn't. 3. A liquid investment is generally valued higher than an illiquid one. 4. A higher valuation means the company is able to raise funding from the market at a later stage, by selling additional equity (if required) -- this is relevant for the company.

whatok 9y ago

Might be good to start a thread on this rather than hijacking something tangentially related.

eru 9y ago

If there's an IPO of two otherwise identical companies, which one would you pay more for: - company A who's shares will be traded in a deep and liquid market, so you can get rid of them whenever you need money (eg for unforeseen circumstances) - company B who's shares can not be sold easily afterwards? If the answer is A, you see how the secondary market can help the first issuer reap a higher price, thus helping the company succeed. By the way, you are not alone. I was asking myself very similar questions a while ago. Mostly in the form of: "why would a company's management ever care about share price?" (Outside of when it's trying to raise more capital.)

mi100hael 9y ago
A company's management cares about share price (and sometimes dividends) because that's what the owners of the company (shareholders) care about. If the directors of a publicly traded company don't care about share price, then the shareholders will vote in new management that does. At the same time, share price isn't something management can directly change. They do so by running the business well so that it generates profits and growth. So the question "why would a company's management ever care about share price?" can be answered "because it's usually an indicator of whether or not they're doing a good job and provides job security."
- eru 9y ago
  That's basically the answer I arrived at as well. Yes. For me the topic's related to the grandparent comment's question about 'why should the company (or its management) care about the stock market'?

ThomPete 9y ago

Do you mean to society or to the companies onbthecstock market?

Tyrek 9y ago

Liquidity. The fundamental problem with pre-financial markets is the inability of those with money (investors, both large and small) to connect effectively with those who need money (business owners, etc). Often, you needed some sort of personal connection in order to invest or seek investment from others. The financial markets provide a more efficient way to connect the two parties, based on mutually accepted standards (financial statements, public disclosures, etc), which forms the basis of public offerings. Once the stock has been released to the public, the market remains a valuable tool for the market to determine price, both among investors and for the company (buybacks and additional offerings primarily). And this is just a simplified model of the equity markets. Add debt, derivatives, FX and various futures, and it gets more complicated.

cujic9 9y ago

The "explain like I'm 5" version, partly to answer you, and partly as a clarifying exercise for myself. In a market, you trade dollars for other valuable things. In a stock market, you trade dollars for stocks. Why is a stock valuable? It represents a small piece of a company. If you bought up all the pieces of a company, you would own the entire company. But most people can't buy an entire company, so they buy small pieces of a company instead. Why would you want to trade dollars for a small piece of a company? A few reasons: 1. Because a company owns valuable assets, and if you own part of a company, then you own a part of those valuable assets. 2. Because a company earns money, and if you own part of a company, then you get some of that money. (Either directly as a dividend, or indirectly as more your shares gain in value.) Think about it: if you own part of a company, then for some small fraction of the day, every single person in that company is working for YOU. YOU get the fruits of their labors for that fraction of the day. If you do this with enough companies, then you can quit your job. 3. Because a company makes decisions, and if you own part of the company, then you get to vote on how those decisions are made. 4. Because dollars become less valuable over time, by about 2% per year, assuming that the economy is operating as planned. (Inflation.)

sailfast 9y ago

Stock markets exist to allow multiple people to invest in a company which allows for spreading risk for the venture. The price of the shares reflects the underlying view of the price of the risk in buying a stake in the company, in addition to the outright value of the firm / venture. Clear, transparent information about these prices and the ability to buy and sell this risk reduces overall costs to the economy for operating these ventures, greatly increases overall liquidity in the market, and overall greatly lowers overall costs and provides much more ready access to capital for ventures.

splintercell 9y ago

If read fiction then I recommend reading 'Time will run back' by Henry Hazlitt[1]. It explains the emergence of consumer goods market and stock markets beautifully by starting from a 1984 style society without any private goods (and no memory of Capitalism) and an open-minded dictator. 1. https://www.amazon.com/Time-Will-Back-Henry-Hazlitt/dp/1610160258 https://www.amazon.com/Time-Will-Back-Henry-Hazlitt/dp/16101...

drcode 9y ago

I short, an asset (whether a stock, a house, or a bar of gold) only has any meaningful economic value if you can actually sell it in exchange for traditional currency. Stock markets make it easy to sell your stocks- If you can't sell a stock it's just a useless piece of paper.

boxy310 9y ago
Further: before stock markets had a relatively clear bid-ask price range, everyday people would treat stocks as the same as paper currency (which was also relatively new at the time). This led to inflationary bubbles and crashes. The John Law Mississippi Company bubble in early 18th century France caused a significant economic crash, which exacerbated the economic situation leading up to the French Revolution a good 70 years later.

turk184 9y ago

Access to capital in a capitalist economy isn't important?