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> Non-finance people seem to think the stock market only exists for investing, which isn’t true at all. In fact outside of an IPO you are not investing into a c

> Non-finance people seem to think the stock market only exists for investing, which isn’t true at all. In fact outside of an IPO you are not investing into a company, but just trading a piece of a pie that already existed. The stock market has always been primarily about trading, and informational arbitrage is simply more efficient when you have computers calculating it Baloney. Corporations compensate employees, management and executives in stock. Furthermore, they may use their stock as debt collateral, or flat-out purchase investments [e.g. startups or other companies] completely or partially with stock. For example Facebook purchased Whatsapp with $12 billion of Facebook shares, $3 billion RSUs, and $4 billion in cash [1]. Moral of the story: The higher your stock price, the lower your cost of capital. [1] https://en.wikipedia.org/wiki/WhatsApp#Facebook_subsidiary_(2014%E2%80%93present) https://en.wikipedia.org/wiki/WhatsApp#Facebook_subsidiary_(...

opportune 7y ago
What exactly are you arguing? That stock based compensation or usage in an acquisition means the stock market isn’t about trading? Sure, the more valuable your company is (let’s not say stock price because really it’s your market cap and some other factors) the more it can leverage that to make deals. Not sure how that’s related to the function of the stock market itself
- esoterica 7y ago
  Companies save cash by paying employees in stock instead of cash (and saving cash is just an indirect way or raising cash, a penny saved is a penny earned etc.) Companies cannot pay employees in stock unless the employees have a way of eventually selling that stock. Employees can only sell stock because a robust secondary market exists for buying and selling stock. Therefore, the continuous trading of stock helps companies raise cash and “create value” even after the IPO.
- paulgb 7y ago
  When a start-up is privately held, they might raise a round of funding to grow their team. Investors get a piece of the company, the employees get paid, and the company gains an employee at the cost of diluting their equity. When a publicly traded company wants to grow, they can give the employee stock. The employee can turn around and sell the stocks on the market. As above, investors get a piece of the company, the employee gets paid, and there are more outstanding shares. I'm not OP but I think their point was that the two cases are not so different. The line between what is "trading" and what is "investing" is not so easy to draw.
- ElonMuskrat 7y ago
  > In fact outside of an IPO you are not investing into a company, but just trading a piece of a pie that already existed. This assertion is false. The purchase of shares creates upwards pressure on the stock price, which reduces cost of capital.

opportune 7y ago

What exactly are you arguing? That stock based compensation or usage in an acquisition means the stock market isn’t about trading? Sure, the more valuable your company is (let’s not say stock price because really it’s your market cap and some other factors) the more it can leverage that to make deals. Not sure how that’s related to the function of the stock market itself

esoterica 7y ago
Companies save cash by paying employees in stock instead of cash (and saving cash is just an indirect way or raising cash, a penny saved is a penny earned etc.) Companies cannot pay employees in stock unless the employees have a way of eventually selling that stock. Employees can only sell stock because a robust secondary market exists for buying and selling stock. Therefore, the continuous trading of stock helps companies raise cash and “create value” even after the IPO.
paulgb 7y ago
When a start-up is privately held, they might raise a round of funding to grow their team. Investors get a piece of the company, the employees get paid, and the company gains an employee at the cost of diluting their equity. When a publicly traded company wants to grow, they can give the employee stock. The employee can turn around and sell the stocks on the market. As above, investors get a piece of the company, the employee gets paid, and there are more outstanding shares. I'm not OP but I think their point was that the two cases are not so different. The line between what is "trading" and what is "investing" is not so easy to draw.
ElonMuskrat 7y ago
> In fact outside of an IPO you are not investing into a company, but just trading a piece of a pie that already existed. This assertion is false. The purchase of shares creates upwards pressure on the stock price, which reduces cost of capital.