What is Digg?223 Comments
- inactive, on 10/17/2008, -6/+57Seems the irrational pessimism has spread to Japan!
"Following the problems in the sub-prime lending market in America and the run on Northern Rock in the UK, uncertainty has now hit Japan.
In the last 7 days Origami Bank has folded, Sumo Bank has gone belly up and Bonsai Bank announced plans to cut some of its branches.
Yesterday, it was announced that Karaoke Bank is up for sale and will likely go for a song, while today shares in Kamikaze Bank were suspended after they nose-dived.
While Samurai Bank is soldiering on following sharp cutbacks, Ninja Bank is reported to have taken a hit, but they remain in the black.
Furthermore, 500 staff at Karate Bank got the chop and analysts report that there is something fishy going on at Sushi Bank where it is feared that staff may get a raw deal." - chupavacas, on 10/16/2008, -9/+49Because they are the last vestige of a truly free market (as long as government stays out of bailing out companies that should be allowed to fail and bans on short seling).
- hamobu, on 10/17/2008, -4/+35Q: Why do we need stock markets?
A: To trade Stocks. - TechMike, on 10/17/2008, -2/+28Title doesn't match article
Answer to the question is: to help average guys invest in good companies without lots of cash to spare. - evanfrey, on 10/17/2008, -0/+21?? You mean the Fed? A private institution that actually sells money to the government?
- greenm1981, on 10/17/2008, -5/+25Stock markets are most certainly not free markets. The presence of the SEC ( in the US) and taxation on capital gains preclude any claim to them being a free market.
- duggynyc, on 10/17/2008, -1/+19Despite the current turmoil, the stock market has created more wealth for more people than any other investment vehicle.
- jrchin, on 10/17/2008, -1/+18Not exactly. It's true that once the shares are sold, the shares are out of the hands of the company. However, market forces will bring the share price up or down, and the company can choose to buy back or sell or issue more shares of its own stock in reaction to the market. So in that sense, the company can benefit from the people who are buying and selling shares on the market.
- aletoledo, on 10/17/2008, -0/+17I think he meant that there shouldn't be bans on short selling (there were some recent bans, so I suspect thats why he brought it up).
- evanfrey, on 10/17/2008, -3/+16tool
- murrdpirate, on 10/17/2008, -6/+18By buying shares in a company, you can take power away from the "corporate masters" and give it to yourself. I really think the stock market is one of the greatest systems we have ever come up with.
- evanfrey, on 10/17/2008, -5/+15tool
- theutopian, on 10/17/2008, -0/+10Fantastic article that explains some fundamentals that many people would not now.
This is why Digg exists. - davewelsh79, on 10/17/2008, -0/+10All the trouble it would be to find sellers or the trouble to find buyers when you wanted to sell maybe? Maybe the trouble it would be to find the companies to invest in in the first place? There are a lot of ways the stock market makes it easier for the little guy to invest.
- geoboy, on 10/17/2008, -1/+10Correct. A truly free stock market would have to regulate itself, not rely on government for regulation.
- trer, on 10/17/2008, -5/+13So America can have legalized gambling without having to actually legalize gambling.
- HippyInASuit, on 10/17/2008, -1/+9Because people need to be encouraged to gamble instead of saving their money. Seriously though, people feel the need to invest in the markets primarily because the interest rate in savings accounts is never even close to real inflation. So everyone are forced to either let their saving shrink through taxation called inflation or gamble in the markets, hoping to come out ahead of inflation. Everyone except the bakers who print the money and the companies that get it first that is.
Its interesting no note America had virtually no inflation from 1800 to 1913, before the Federal Reserve was established. You know, when the dollar was backed by gold. Crazy how that worked back then. Good thing we're smarter now and don't need to follow that pesky, outdated Constitution, otherwise people would be able to keep the value of their hard earned money. - davewelsh79, on 10/17/2008, -0/+8It's rare you'd make more than 1% after inflation on a CD.
- ddawggin, on 10/17/2008, -3/+11YodaJones has no idea about how corporations (aka "The Man") work. How they finance activities that provide people like him with jobs that they can bitch about.
Start your own company and when you realize you need equity financing, I will laugh. - greenm1981, on 10/17/2008, -0/+8Don't forget those no-bid, no-oversight government contracts. Pretty lucrative without all the risk.
- inactive, on 10/17/2008, -0/+8I prefer Sepuku. ;-)
- aletoledo, on 10/17/2008, -1/+8technically it's not a loan, but ownership. Of course nowadays there are many shares that have no voting rights and don't receive a dividend. In those kinds of stocks, this is more of a donation rather than a loan, since there is no repayment and no ownership rights.
The only benefit of buying a stock without voting rights or dividend is to trick someone in buying it from you for more than you paid. It's really a giant pyramid scheme. - gametavern, on 10/17/2008, -1/+8we need them because businesses can't foot the entire bill if they want to expand.
- aserer511, on 10/17/2008, -0/+7So companies can raise capital?
- subliminalurge, on 10/17/2008, -1/+8Yeah, it would have been so much nicer to drive halfway across the country to Cupertino yesterday when I bought Apple stock. Instead I was forced to do it from the comfort of my own bedroom.
- n8Dog, on 10/17/2008, -3/+10Umm
"Investing in company shares is thus potentially attractive, as shareholders get a share of the profit of the business but know that the worst that can happen is that they lose the value of the original investment."
Right, that's called a dividend. But this isn't true for like 90% of the companies out there. Most companies do not share the profits of their business with their public shareholders. Instead employees get bonuses, etc. or the profits remain inside the company for future growth/expansion/R&D.
So without the dividend why on Earth do people participate in a stock market? They participate because they believe that the stock market is indeed a pyramid scheme. More people will put even more money in the stock market in the future than there is money in the stock market today. And when that happens prices will go up, and one can sell those shares to the next guy in line who's hoping that in his future someone will come along and think more people will come in and want to buy his shares.
If the world had a finite population let's say 4 people, a stock market gets silly:
For example, lets pretend we live in a real small world of 4 people right now. Mr. Boss is a person. And so are Mr. Banker, John and Jane . Mr. Boss creates a company. Let's call it Apple. Apple sells pet rocks. Jane loves pet rocks. She buys every new model of pet rock that Apple makes. Well, Mr. Boss at Apple has some very grandiose plans on new pet rocks he'd like to make. But he needs more capital.
So he goes to a bank run by Mr. Banker. The Bank will underwrite Apple's IPO. 2 shares of stock will be issued. Mr. Boss will keep one, and one share will be put on the open market. Apple was also given $1 by the bank Mr. Banker runs as his capital so that Apple can now move on with their expansion plans. So now the bank attempts to sell the one share available to the open market. Apple has no plans on redistributing its profits as dividends, which seems to be how a majority of companies operate.
Jane decides to buy that one share at the opening price of $2.
Now what?
Jane had decided to buy that share of stock because her books told her she should invest in companies with "good fundamentals". She knows that Apple is selling a lot of rocks. So she puts out an order on the stock market that she will sell her stock as soon as someone is willing to giver her $5.
Maybe John comes along and also believes the "fundamentals" of Apple are strong and thinks the "stock price is going to go up". So John looks at the stock market and sees a share of Apple available for $5. He buys it. Now the price of Apple is worth $5.
Now Jane could decide that she wants to buy that stock again from John for $6, but at some point are these people going to figure out that they'll just be pushing a bucket of money around while maybe adding to it, and the last one holding it is going to keep all the money?
Isn't that kind of how are stock market today works?
If John freaks out and decides he needs his $5 back to buy some food, he goes and tries to sell his share of Apple. Jane decides that the stock market is a scam and doesn’t want to play anymore. So John keeps trying to sell his share for less and less and less, finally trying to sell his share of Apple for $0.01.
But who really cares? Apple continues to sell pet rocks that Jane really likes to buy, Mr. Boss is kind of upset his share of his own company can’t be sold, but he keeps making money from all the pet rocks he sells.
The price of a share of stock isn’t really dependent on a company’s fundamentals. It depends on what Jane and John decide to base it on. Apple doesn’t have to really exist for Jane to decide to buy it again for $6, and it could be doing extremely well selling rocks for her to decide she doesn’t want to play the game at all.
Isn’t the stock market just pushing money around from newbies/amateurs to the more knowledgeable/lucky (like a game of poker). Where the house (the banks) continue to take a rake (a trading fee) every time someone tries to play. The newbies/amateurs come out poorer in the end, unless they can improve their game and make money from other newbies that are born and decide to come play the game. But if people decide to stop entering the game the whole thing is going to crumble much like the problem with a pyramid scheme. - dillywe, on 10/17/2008, -0/+6am I wrong in saying that it is, in a very basic sense, a way for companies to gain capital through investment by buying stock? I realize it's more complicated then that, but is that a/the basic gist of it?
- insanebrain, on 10/17/2008, -0/+6MOTHERF. .. I fell for it.
/brilliant - marshallpeck, on 10/17/2008, -0/+6fta
THE ANSWER
Wherever there are companies, there are shareholders
Shares are traded in a stock market to raise funds - ddawggin, on 10/17/2008, -0/+6I feel retarded that I didn't get it until the third bank :(
- csstudent, on 10/17/2008, -0/+6Question for the market gurus - after an IPO of a company, is it correct to say that the company gets no benefit from people who buy/sell shares?
Thanks. - whorunbartertwn, on 10/17/2008, -0/+6The stock market exists so there is a centralized place to exchange shares of ownership in companies. Without it how does on buy/sell shares with an ad in the classifieds?
- inactive, on 10/17/2008, -1/+6so you're saying you bought your house with a suitcase full of $500 bills?
if not, don't be so ignorant of companies also needing to borrow money, because that's how it would've been done before the stock market - VitriolAndAngst, on 10/17/2008, -3/+8Because how do you make massive amounts of money for exchanging bits of paper and taking advantage of people who want to make some amount of money for nothing?
Beyond Venture Capital, once a company is established, this money CAN be used to improve the company. But it really isn't based upon anything but a guess at how well the company is going to do in the future. That stocks change hands many times a day makes no sense towards these goals. Sometimes the value changes based upon predicting that people are going to panic.
But the real question that needs to be asked is; "Why do we have an unregulated Derivatives and CDS market?" This is many times larger and is kind if like a Casino, but nobody knows what the prices are. - spritom, on 10/17/2008, -0/+5The IPO benefits the company for that part of raising capital. But the company continues to get benefit from the secondary market. It affects their subsequent issues of stock, their corporate actions on the stock, and also, and possibly bigger benefit, of credit ratings for bonds they may issue. Remember, the bond market is much bigger than the stock market.
In fact, some companies may embark on buying back some of the outstanding shares on the market. This has several effects such as improving their financial ratios, such as P/E ratio and others. This can also raise the stock price as supply on the market of that stock goes down. - galeninjapan, on 10/17/2008, -1/+6Q: Why do we need capitalism?
A: To create capital and raise the standard of living for everyone. - kingmanic, on 10/17/2008, -1/+6Basically. That sums it up. Traders profit from volatility, upwards or downwards while long term players profit from perceived value. Once the market get big enough small fluctuations can lead to profits for a few. The focus on growth over stability comes from this. The stock market becomes less profitable if companies stop growing. In a way our economics is built on the false idea that the economy will grow forever.
- inactive, on 10/17/2008, -1/+6Sen. McCarthy! Your still alive?!? Are you beckoning digg from the dead?
- jmkiii, on 10/17/2008, -1/+6no.
- angryfirelord, on 10/17/2008, -1/+6Bingo. Prior to modern stock markets, what was the fastest way to build up your wealth? Well, I could buy some item and hope it goes up in value over time. Or I could start my own business, but that requires a huge amount of risk. With the stock market, I'm able to invest a little of my money and "own" a part of a company without being responsible to what happens to that company. Granted, it's not as easy as cashing into a CD or bond, but with higher risk comes higher rewards. In addition, it also partly serves as a performance indicator for a company. So if I think my bank is about to go under, I can pull up their stock and earnings and see what's going on.
- murrdpirate, on 10/17/2008, -3/+8I think that is basically correct. The company itself is not affected by the fluctuations in the price of their shares - they already received all the money they're going to get from shareholders after the IPO.
But that doesn't mean the price doesn't matter to them. Obviously they want to make money, so the value of their shares reflect how well they're doing. But there are some practical things where they may need to consider the market price of their shares, such as deciding whether to issue more stock or buy back some existing stock and perhaps deciding on a dividend amount. - pintomp3, on 10/17/2008, -0/+5the problem with stocks is that it puts the interests of the stock holder before the interests of the employees. stock holders have very little loyalty and are only interested in short term profits. when newspapers go public, they start slashing budgets and firing reporters in order to boot quarterly profits at the expense of the companies future. the ceo are rewarded for the behavior with huge bonuses.
- aletoledo, on 10/17/2008, -0/+4Since you're explaining so much, why would someone buy a stock that doesn't have voting rights and doesn't distribute a dividend?
- hamobu, on 10/17/2008, -0/+4You are not entirely accurate. You can gamble on the stock market, but you don't have to. There are good reasons to buy stocks.
You can gamble on cur ency markets too, but that is not why we have currency. - ScottMitchell, on 10/17/2008, -0/+4Anytime you have an illiquid asset you have inefficiencies. The stock market offers an active secondary market for shares in publicly traded corporations, and therefore makes these shares liquid. This makes it easier to buy and sell shares of companies and, with the size of the participation, attributes more accurate pricing to the shares.
- inactive, on 10/17/2008, -0/+4OTC stocks are also easily manipulated (as far as price is concerned)..which is why many people stay away from them. A stock that is listed on a major exchange has to meet certain criteria in order to maintain its status on the exchange and has alot more eyes looking at its details. As a result, there is less room for manipulation.
- ddawggin, on 10/17/2008, -0/+4First paragraph is dead on.
But, even after an IPO a company can authorize and issue more shares, diluting current shares but still raising more capital. - aletoledo, on 10/17/2008, -1/+5There are already a huge number of stocks traded over the counter. A stock market simply makes it easier and more accessible to trade.
Thats really the biggest fault in the linked article. He suggests that a stock market is necessary for companies to exist. Which of course is a gross exaggeration. - Hillsfar, on 10/17/2008, -1/+5Stocks have few true tangible benefits. It's all about hoping someone else wants to buy the stock you have, but at a higher price. Aside from that, it's not like you actually own something that gives you money - unless it's a dividend-paying stock, and those are sometimes paltry dividends.
- mahadiga, on 10/17/2008, -1/+5Why do we need Fed?
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