Robin Hood wrote:Maximus:.Yes, the company gains or loses from the rise or fall in its share price. The whole point of a company going public and issuing shares is to raise money. They then can use this money to invest in their operations and try to grow the business
Absolutely 100% correct, well almost ......... however that scenario applies ONLY with the initial purchase of shares on the day they are traded! If you look at a share certificate it has no intrinsic value stated on it! Why? Because all it is is a receipt in return for the initial purchase of XX shares and has only a perceived value on the trading markets. If the MARKET value of those shares rises by say 50% the day after they trade, the Company does not get another cent. The holder of the receipt can cash in and sell it for 50% more then he paid for it. He made a profit out of the increase in price by selling the receipt ..... but no profit for the company!Would you rather own a company who’s shares trade for $1 or $1000?
Value is of no significance it is just what you are prepared to pay! If I thought I could buy the shares for $1 and sell them the following day or following week for $1.50, then I would go for it. But if I am wrong and they drop to .75c then I lose, because the company is not going to give me anything back! So I lose, not the company as they still have the money for each share I bought speculating I would make a profit!
The rise and fall in value is determined by market speculators and has virtually no effect on the company.If I buy one share in your company at $1, what are you going to do with it?
As you said..... invest it in the operation of the company. More to the point in this instance, what are YOU going to do with your share? You could hold on to it and reap profit from the dividends or you could sell it when the perceived market value of the share reaches your target level. But it is never anything other than a receipt for an initial $1 investment.Speculators play their part in the market too. they provide liquidity, they help create an efficient market and keep spreads tight. Most of them lose anyway. Seriously, speculators don’t make up as large a proportion of the market as you think. If we are talking about foreign exchange, most of the volume is from the banks themselves, investment managers and commercials. Your independent speculator is at the bottom of the food chain.
I have already said that to Erolz. Speculators play their part in the Markets but the Markets are not representative of the performance of the economy. That is a mirage! The economy needs direct investment and that does not come from share valuation as the value is only perceived and remains within the financial system, only the initial share purchase put the money into the economy. The markets and the economy are two different things.Would you rather have a market that has a huge depth of liquidity with competitive bid and asking prices close together or one that has shallow or sparse liquidity with a wide spread between the most competitive bid and most competitive asking prices? I think the preference is obvious. It is actually the latter market that can be easier manipulated.....
I would respectfully suggest that if the initial ‘share’ investment was into a BOND with a face value and term limits, then the value would remain constant and your interest on those bonds would be your return. Not a perceived value set by speculators who will likely know sod all about the industry the company is involved in. If the company needs more money it sells more bonds. Bonds are retrieved on more-or-less known and fixed values there is no room for speculation the return is based on performance!Let’s take the housing market, speculators operate here as well. This market is notorious for not being as liquid as other markets. It can take ages to sell your property. Imagine in there were no speculators. It might take even longer to sell your property. Imagine you are ‘desperate’ to sell. Wouldn’t you be glad someone is willing to take a punt on it and give you cash?
Once again, buying and selling existing property does nothing for the real economy as the value (Wealth) is locked into the property. It may go up, it may go down according to availability of funding and the amount of property available. But once again it is not reflective of the real wealth creating economy. This is why giving QE to the banks to loan instead of into wealth creating industry didn’t work. The banks fed it into mortgages and other financial assets!
The economy did not benefit ..... the banks and market speculators did. And what do they actually do for the economy ...... tell me, because as far as I work it out they don’t! They make money and most of that is locked into assets and the banks hold the assets as security for the money they normally create to give credit. The QE money went to banks to buy up ‘asset backed securities’ for that read property with loans that have defaulted. The QE bought out the debt from the banks, the money paid to the bank wrote of the book debt and then disappeared ......... and the assets got sold off to provide the banks with the interest they lost.
So I say again IMO opinion there is no room for speculators in the economy, what is needed is investment in wealth creating projects, not speculative money making ventures within the banking and financial system. That's the way I see it!
You can look at it purely from a speculative perspective but shareholders are also part owners of a company. Depending on the type of share, preferred or common, they can vote out the management team.
Simply put a low share price is not preferred. It can make a company easily susceptible to take overs. Then when a company wants to raise more money, it has to issue more shares. The lower the price, the more shares you have to issue to raise x amount of money. Which creates dilution, that existing shareholders do not like.
The share price is linked to wealth and the owners, or the board, may retain a number of shares in the company too. They have a vested interested to perform well. The medium to long term price of the shares is linked to its performance. Forget the short term, price swings that are driven by fear and greed or speculators. The market discounts and prices at a premium now and again but once these bargains have been snapped up, the market corrects itself. The fundamentals or the Real value of a business will prevail in the share price over the medium to long term. You just can’t go around buying assets worth $100 for $50 for long without others cottoning on and eroding that inefficiency. we cant all be rich....
The company itself provides the goods or services that benefits the economy.
Buying shares in a company makes you a part owner of the company.
Saying that buying and selling shares provides no benefit to the real economy may be partially correct but Just a tad correct if that. It enables company’s to perform that function.
What do banks and speculators do for the economy? They control it and help propel it forward.
Interest rates and finance are the mother of all economy and speculators are the kind of entrepreneurs taking the risks to establish commerce. Without speculation or risk taking, you have no entrepreneurship. You have no job creation, no innovation, no goods or services provided to others, nothing.
..... I was just pointing out the fact that the ‘
Now corrected ! 
