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Apart from speculative valuation, it's the value of the goods and services produced by the company + it's assets etc.

by jseban 5y ago

newswasboring 5y ago
Has there ever been any case where people were actually able to cash out in that way? Companies to my knowledge tend to fail catastrophically and in that scenario nobody really gets anything. And there isn't a way to "cash out" apart from selling it to someone else.
- jseban 5y ago
  I owned shares in a company that was suddenly acquired and all shareholders cashed out with a nice profit. This company didn't fail, it just succeeded and disappeared.
  - danbruc 5y ago
    This scenario makes perfect sense to me, it's essentially the company buying back all the shares, I don't think it is really significant that another company bought them up instead. You issue shares to raise capital, you invest the capital, you buy back the shares distributing the gains or losses. But what if you never buy back the shares?
    - jseban 5y ago
      I agree that it's not significant, it can also just transfer to being privately owned. Companies go in and out of the stock exchange all the time. The point of an IPO really is that you have some kind of growth or development phase that needs funding, so it's always a kind of "negative balance" and selling a promise for the future. If a company was rock solid with constant profits and no use for additional funding, it would probably be traded below it's cash assets, because there's no use of owning such a stock. The main point is that invested money is actually used to do things, even if you lose you have contributed to progress and development in some way, it's not like a casino where money just moves around.
danbruc 5y ago
Isn't it reasonable to assume that the value of every company will eventually go to zero? In that case - and for simplicity assuming that a share is just a share of the company assets, no dividends, no voting rights, no whatever - wouldn't the shares just transfer money from later shareholders to earlier shareholders until the share reaches it maximum value and starts its decline towards zero after which everyone just loses money? That seems zero sum to me, from the perspective of all the shareholders, the company can of course provide value to its customers and employees. Things would change if you could exchange your shares for the corresponding company assets. In case it's not obvious, I have no clue about financial markets.
- jseban 5y ago
  It wouldn't transfer money strictly from later shareholders to earlier ones, because that's not fixed as in a pyramid scheme. The people from the failing company should theoretically be doing something even more worthwhile with their time and energy, unless there has been some actual unforseen damage. I mean it's zero sum from the point of view of all the shareholders as a single entity, if they can invest only in one single company, but not the market overall.

Apart from speculative valuation, it's the value of the goods and services produced by the company + it's assets etc.

by jseban 5y ago

Apart from speculative valuation, it's the value of the goods and services produced by the company + it's assets etc.

Has there ever been any case where people were actually able to cash out in that way? Companies to my knowledge tend to fail catastrophically and in that scenario nobody really gets anything. And there isn't a way to "cash out" apart from selling it to someone else.

jseban 5y ago
I owned shares in a company that was suddenly acquired and all shareholders cashed out with a nice profit. This company didn't fail, it just succeeded and disappeared.
- danbruc 5y ago
  This scenario makes perfect sense to me, it's essentially the company buying back all the shares, I don't think it is really significant that another company bought them up instead. You issue shares to raise capital, you invest the capital, you buy back the shares distributing the gains or losses. But what if you never buy back the shares?
  - jseban 5y ago
    I agree that it's not significant, it can also just transfer to being privately owned. Companies go in and out of the stock exchange all the time. The point of an IPO really is that you have some kind of growth or development phase that needs funding, so it's always a kind of "negative balance" and selling a promise for the future. If a company was rock solid with constant profits and no use for additional funding, it would probably be traded below it's cash assets, because there's no use of owning such a stock. The main point is that invested money is actually used to do things, even if you lose you have contributed to progress and development in some way, it's not like a casino where money just moves around.

danbruc 5y ago

Isn't it reasonable to assume that the value of every company will eventually go to zero? In that case - and for simplicity assuming that a share is just a share of the company assets, no dividends, no voting rights, no whatever - wouldn't the shares just transfer money from later shareholders to earlier shareholders until the share reaches it maximum value and starts its decline towards zero after which everyone just loses money? That seems zero sum to me, from the perspective of all the shareholders, the company can of course provide value to its customers and employees. Things would change if you could exchange your shares for the corresponding company assets. In case it's not obvious, I have no clue about financial markets.

jseban 5y ago
It wouldn't transfer money strictly from later shareholders to earlier ones, because that's not fixed as in a pyramid scheme. The people from the failing company should theoretically be doing something even more worthwhile with their time and energy, unless there has been some actual unforseen damage. I mean it's zero sum from the point of view of all the shareholders as a single entity, if they can invest only in one single company, but not the market overall.