3 ms·

If the stock market worked the way you imagine, it wouldn't exist.

steve1977 1y ago
It’s a pretty accurate description of how the stock market works. How would you describe it? The only time money actually flows to the company is when stock is initially offered. A company might be valued billions in the stock market, but this is not money that the company can work with.
- alexey-salmin 1y ago
  > The only time money actually flows to the company is when stock is initially offered. > A company might be valued billions in the stock market, but this is not money that the company can work with. Both of these statements are demonstrably false. Why do you think companies go public (which is quite troublesome) in the first place? Just vanity to see the billions they don't have access to? Or to allow investors to make money without helping the company in any way? It's clear why investors would come to a purely speculative market with no intrinsic value (e.g. crypto) but it's unclear why a company would offer their shares to be traded like a shitcoin. Being public is the instrument for the company first and foremost. There's the IPO, then companies continuously issue and buyback stocks depending on the cashflow. Look e.g. at the graph of Tesla's outstanding shares [1]. Then companies also sell bonds or borrow money using their own stock as the collateral. The bigger valuation you have the more capital you have access to. Not to mention that even in the OP's simplistic view of the market there is an actual "new value" aspect: if you buy stocks from a VC or a founder, they use it to fund the next startup. [1] https://www.macrotrends.net/stocks/charts/TSLA/tesla/shares-outstanding https://www.macrotrends.net/stocks/charts/TSLA/tesla/shares-...
  - steve1977 1y ago
    I'm not seeing how this is contradicting to what I said. IPO is initial offering of stock. That's when money flows to the company. Fair point about using stock as collateral though.
    - alexey-salmin 1y ago
      What about issuing more stock after IPO? For many companies money flows in continuously, check the Tesla graph I sent above. It wouldn't be called "Initial Public Offering" if it was the "Only Public Offering" like you suggest.
      - steve1977 1y ago
        I think my terminology might not be the test (non-english native speaker). When I say initial offering, I mean whenever stock is newly (initially) issued - whether that's in IPO, after an IPO or also in a private offering. Not sure what the correct term would be. My point was, money essentially only flows into the company at that point. E.g. company issues stock, investor A buys it. When investor A sells to investor B, money only flows between these two investors. No money flows to the company. Unless - as you have pointed out - company assumes the role of an investor in its own stock. But the fact alone that a stock price is rising as such does not generate any new capital to work with for the company. And that is a point many people seem to misunderstand. When Microsoft is worth 3.76 trillion USD, that doesn't mean that Microsoft has 3.76 trillion USD it can work with. That was the point I was trying to make.
        alexey-salmin 1y ago
        That's true but saying that investors moving money between each other is a "pretty accurate description of how the stock market works" is simply incorrect. The above is a mere byproduct of the market working. The market "works" by giving companies and entrepreneurs access to capital, the rest is a derivative of that. Otherwise you can as well trade postal stamps rather than stocks.

steve1977 1y ago

It’s a pretty accurate description of how the stock market works. How would you describe it? The only time money actually flows to the company is when stock is initially offered. A company might be valued billions in the stock market, but this is not money that the company can work with.

alexey-salmin 1y ago
> The only time money actually flows to the company is when stock is initially offered. > A company might be valued billions in the stock market, but this is not money that the company can work with. Both of these statements are demonstrably false. Why do you think companies go public (which is quite troublesome) in the first place? Just vanity to see the billions they don't have access to? Or to allow investors to make money without helping the company in any way? It's clear why investors would come to a purely speculative market with no intrinsic value (e.g. crypto) but it's unclear why a company would offer their shares to be traded like a shitcoin. Being public is the instrument for the company first and foremost. There's the IPO, then companies continuously issue and buyback stocks depending on the cashflow. Look e.g. at the graph of Tesla's outstanding shares [1]. Then companies also sell bonds or borrow money using their own stock as the collateral. The bigger valuation you have the more capital you have access to. Not to mention that even in the OP's simplistic view of the market there is an actual "new value" aspect: if you buy stocks from a VC or a founder, they use it to fund the next startup. [1] https://www.macrotrends.net/stocks/charts/TSLA/tesla/shares-outstanding https://www.macrotrends.net/stocks/charts/TSLA/tesla/shares-...
- steve1977 1y ago
  I'm not seeing how this is contradicting to what I said. IPO is initial offering of stock. That's when money flows to the company. Fair point about using stock as collateral though.
  - alexey-salmin 1y ago
    What about issuing more stock after IPO? For many companies money flows in continuously, check the Tesla graph I sent above. It wouldn't be called "Initial Public Offering" if it was the "Only Public Offering" like you suggest.
    - steve1977 1y ago
      I think my terminology might not be the test (non-english native speaker). When I say initial offering, I mean whenever stock is newly (initially) issued - whether that's in IPO, after an IPO or also in a private offering. Not sure what the correct term would be. My point was, money essentially only flows into the company at that point. E.g. company issues stock, investor A buys it. When investor A sells to investor B, money only flows between these two investors. No money flows to the company. Unless - as you have pointed out - company assumes the role of an investor in its own stock. But the fact alone that a stock price is rising as such does not generate any new capital to work with for the company. And that is a point many people seem to misunderstand. When Microsoft is worth 3.76 trillion USD, that doesn't mean that Microsoft has 3.76 trillion USD it can work with. That was the point I was trying to make.
      - alexey-salmin 1y ago
        That's true but saying that investors moving money between each other is a "pretty accurate description of how the stock market works" is simply incorrect. The above is a mere byproduct of the market working. The market "works" by giving companies and entrepreneurs access to capital, the rest is a derivative of that. Otherwise you can as well trade postal stamps rather than stocks.