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The Crash of ’87, from the Wall Street Players Who Lived It

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Re: The Crash of ’87, from the Wall Street Players Who Lived It

#11

Post by liotier »

marak830 wrote: post #7

A side note, and I'm really hoping someone can explain this. What benefit does the stock market provide to us? I understand investing in companies, but for me, and I'll admit a completely naive person to this whole system, it seems to have taken an 'inbest in company with money to help them succeed', to a 'who cares let's just cut and run to make the best profit'. I'm perfectly willing to take a link to a great expla…

> What benefit does the stock market provide to us ?

Direct benefit: liquidity - whether you need to buy or to sell, you have a place where you'll find a counterpart quickly.

Indirect benefit: information - just watching the bets lets you have an idea about how much people with skin in the game value things, letting you take better decisions about resources allocation.

Re: The Crash of ’87, from the Wall Street Players Who Lived It

#12

Post by lifebeyondfife »

marak830 wrote: post #7

A side note, and I'm really hoping someone can explain this. What benefit does the stock market provide to us? I understand investing in companies, but for me, and I'll admit a completely naive person to this whole system, it seems to have taken an 'inbest in company with money to help them succeed', to a 'who cares let's just cut and run to make the best profit'. I'm perfectly willing to take a link to a great expla…

At the very highest level, you have two groups of people: investors and businesses.

Investors have capital, and want to see somebody produce something extra with that capital. The main variables are the size of the capital, and the risk profile the investor is prepared to accept.

Businesses require funding to grow[1]. The main variables are the nature of the reparations, and the control they are willing to concede.

The scale of the four dimensions above means that there is no one size fits method to transfer capital from investors to businesses and vice versa. For instance, Capital: $2 to $2bn; Risk: I'm prepared to lose it all, to I want guaranteed, fixed returns; Reparations: I'll pay 20% interest, to you can have non-negotiable dividend; Control: you can own debt, or you can have a seat on my board.

The evolutionary nature of the finance industry has gone from age old future contracts ("I'll give you $100 next October for your crop of wheat") to other more exotic derivatives e.g. Snowball Swap. Even if you as an individual do not need complex options like that, you may invest in a 401k that does.

[1]not limited to pure funding. Consider a manufacturer that makes a product that takes a year to make. If they sell to a foreign market, they cannot risk working and consuming raw materials for a year in one currency to be paid in another currency at the end of the order that varies. Thus, an FX Future gives the manufacturer the confidence to agree a deal and concentrate on the business fundamentals, not global currency markets.

Re: The Crash of ’87, from the Wall Street Players Who Lived It

#13

Post by lmm »

marak830 wrote: post #10
lmm wrote: post #9

Earlier quoted context omitted.

Think about how something like, say, Heroku would look to someone outside the tech industry - so this is a company where people submit programs and they run them - not even on their own computers, but on Amazon's computers - and somehow that's something that makes a profit? There are lots of small intermediaries in finance, like in any industry. They make money because they provide services that others find valuable.

I still don't understand. (this may be because I am not familiar with Heroku aside from hearing about it in passing). Thanks for trying though. Edit: I'm editing further to ask more Edit2: so you said that they make money because they provide services. What services could you offer when (from what I can see): Company A: wants investors. So promises them a portion of profit based on investment. I can't see any value f…

It's worth emphasising that if you just want to invest in a company, modern markets let you do so in an unprecedentedly cheap way: you can usually buy or sell with a penny spread (not legally allowed to be tighter, which is a whole other rant) virtually instantly. If we're really talking about the pure "stock market" then at this point it's pretty much a commodified, low-margin utility business. I'll assume you meant the broader financial industry.

At a simple level: investors might want to invest in a given company at any point on the risk/return curve, rather than just the one their stock or a particular bond issue is set at. They might want to invest in a particular sector rather than having a view on specific companies. They might want to invest in a company whose stocks are priced in a different currency from their own, but without exposing themselves to the currency movements. They might believe a particular sector will outperform the market without wanting to take a view on how the overall market will perform. They might have a big chunk of a commodity to sell in six months and want to spread out the sale according to whenever gets the best price. And all of these views do, ultimately, filter down and translate into concrete capital allocation in the real world: maybe a particular sector ends up hiring more people or building more factories because they have more capital, and the economy does better for everyone when capital is spent in the best way. (Of course it's possible for everyone to be wrong, but the basic idea that averaging out everyone's buying and selling results in our best guess for where the money should go seems sound).

Of course mechanically you end up with a lot of intervening speculators - in between investor A who has a particular set of views about the market and company B that desires capital on particular terms, there might be dozens of intermediaries. But I see that as no different from the way that most real-world transactions are business-to-business - in between you buying a furniture cabinet and the people growing the wood or mining the metal there are dozens of intermediate suppliers, each with their own particular speciality, all adding a little bit of value.

Re: The Crash of ’87, from the Wall Street Players Who Lived It

#14

Post by marak830 »

lifebeyondfife wrote: post #12
marak830 wrote: post #7

A side note, and I'm really hoping someone can explain this. What benefit does the stock market provide to us? I understand investing in companies, but for me, and I'll admit a completely naive person to this whole system, it seems to have taken an 'inbest in company with money to help them succeed', to a 'who cares let's just cut and run to make the best profit'. I'm perfectly willing to take a link to a great expla…

At the very highest level, you have two groups of people: investors and businesses. Investors have capital, and want to see somebody produce something extra with that capital. The main variables are the size of the capital, and the risk profile the investor is prepared to accept. Businesses require funding to grow[1]. The main variables are the nature of the reparations, and the control they are willing to concede. T…

I see and almost understand what you are writing, but how does this help the original business.

Say I'm business A. I'll offer a portion of my business (say 40%) with the offer that you will reap 40% of my profit. (Assuming one person pays in for that whole value).(edit: I offer this as the income will allow me to expand where as otherwise I'd have to wait longer depending on profit)

At what point does almost anything else you mentioned help the business?

Everything else seems likes gambling, imho, and I still can't wrap my head around why it's allowed.

Re: The Crash of ’87, from the Wall Street Players Who Lived It

#15

Post by maneesh »

marak830 wrote: post #14
lifebeyondfife wrote: post #12

Earlier quoted context omitted.

At the very highest level, you have two groups of people: investors and businesses. Investors have capital, and want to see somebody produce something extra with that capital. The main variables are the size of the capital, and the risk profile the investor is prepared to accept. Businesses require funding to grow[1]. The main variables are the nature of the reparations, and the control they are willing to concede. T…

I see and almost understand what you are writing, but how does this help the original business. Say I'm business A. I'll offer a portion of my business (say 40%) with the offer that you will reap 40% of my profit. (Assuming one person pays in for that whole value).(edit: I offer this as the income will allow me to expand where as otherwise I'd have to wait longer depending on profit) At what point does almost anythin…

you can raise capital by selling more shares.

This allows you, as a business, to not have to turn a profit and still be in business.

Re: The Crash of ’87, from the Wall Street Players Who Lived It

#16

Post by marak830 »

lmm wrote: post #13
marak830 wrote: post #10

Earlier quoted context omitted.

I still don't understand. (this may be because I am not familiar with Heroku aside from hearing about it in passing). Thanks for trying though. Edit: I'm editing further to ask more Edit2: so you said that they make money because they provide services. What services could you offer when (from what I can see): Company A: wants investors. So promises them a portion of profit based on investment. I can't see any value f…

It's worth emphasising that if you just want to invest in a company, modern markets let you do so in an unprecedentedly cheap way: you can usually buy or sell with a penny spread (not legally allowed to be tighter, which is a whole other rant) virtually instantly. If we're really talking about the pure "stock market" then at this point it's pretty much a commodified, low-margin utility business. I'll assume you meant…

What I see from this is a while bunch of hand waving to say that 'there are a whole bunch of people between you and x business', despite the fact you can directly purchase their shares(which they offered to gain temporary income to make purchases before their cash flow allowed).

I still don't see a reason why these people between you and the business have any useful reason to exist. Unless for gambling, Wich as far as I can tell is what it is. (And I'm not talking about initial investment, I'm talking about people gambling o weather the value will go up or down).

Ontop of all that, what benefit does it provide to the initial company if people are gambling if the value goes up or down by a few percent? That just seems like a different form of book making.

Edit:

You know upon second read, it seems there is so much hand waving to mitigate investor risk, that completely ignores the idea that you are purchasing a piece of a company, that really seems that the entire system is beibg rebuilt to keep certain people making money.

If I want an investor to purchase 20% of my company. For 20% profit, why should any sort of bonds, currency devaluation come into fact.

As far as I see it: you are directly purchasing a portion of my company. That is a share right? If the value goes up, assumably your dividend will increase. Otherwise it will decrease. What the value of my countries dollar happens, has no effect on the percentile of my company.

All I can see is a lot of hand waving to make things different.

Side note: I'd really like to see a logical reason for any of this.

Edit to lostboys: I think the thread is too long and I can't directly respond, my apologies.

Once the business sells a portion to investors, those portions can be resold. This I get, where all the shorting and everything else comes from, makes me wonder about the entire stock system. At what point is it not about the investment about the business, and gambling about how it will go in the future(eg shorting). That and the whole system akin to it, is the part that is making me wonder how it was ever allowed.

Re: The Crash of ’87, from the Wall Street Players Who Lived It

#17

Post by cm2187 »

liotier wrote: post #11
marak830 wrote: post #7

A side note, and I'm really hoping someone can explain this. What benefit does the stock market provide to us? I understand investing in companies, but for me, and I'll admit a completely naive person to this whole system, it seems to have taken an 'inbest in company with money to help them succeed', to a 'who cares let's just cut and run to make the best profit'. I'm perfectly willing to take a link to a great expla…

> What benefit does the stock market provide to us ? Direct benefit: liquidity - whether you need to buy or to sell, you have a place where you'll find a counterpart quickly. Indirect benefit: information - just watching the bets lets you have an idea about how much people with skin in the game value things, letting you take better decisions about resources allocation.

And the benefit of liquidity is to reduce your risk. If you change your mind, need some cash quickly, or even simply want to know what the market thinks your stock is worth, you need liquidity. If you don't have observable and executable prices, you may struggle to find a buyer for that stock when you need it (delaying a home purchase or exposing you to future changes in market sentiment / health of the company) and will have no idea who to trust to tell you how much you should ask when you sell your position.

Re: The Crash of ’87, from the Wall Street Players Who Lived It

#18

Post by marak830 »

liotier wrote: post #11
marak830 wrote: post #7

A side note, and I'm really hoping someone can explain this. What benefit does the stock market provide to us? I understand investing in companies, but for me, and I'll admit a completely naive person to this whole system, it seems to have taken an 'inbest in company with money to help them succeed', to a 'who cares let's just cut and run to make the best profit'. I'm perfectly willing to take a link to a great expla…

> What benefit does the stock market provide to us ? Direct benefit: liquidity - whether you need to buy or to sell, you have a place where you'll find a counterpart quickly. Indirect benefit: information - just watching the bets lets you have an idea about how much people with skin in the game value things, letting you take better decisions about resources allocation.

The direct I can understand, I want to sell a portion of my business on the bote that I will give that direct portion profit to the holder.

How would any of the other trading help my business, or anyone else?

Re: The Crash of ’87, from the Wall Street Players Who Lived It

#19

Post by lostboys67 »

marak830 wrote: post #16
lmm wrote: post #13

Earlier quoted context omitted.

It's worth emphasising that if you just want to invest in a company, modern markets let you do so in an unprecedentedly cheap way: you can usually buy or sell with a penny spread (not legally allowed to be tighter, which is a whole other rant) virtually instantly. If we're really talking about the pure "stock market" then at this point it's pretty much a commodified, low-margin utility business. I'll assume you meant…

What I see from this is a while bunch of hand waving to say that 'there are a whole bunch of people between you and x business', despite the fact you can directly purchase their shares(which they offered to gain temporary income to make purchases before their cash flow allowed). I still don't see a reason why these people between you and the business have any useful reason to exist. Unless for gambling, Wich as far a…

I am not sure what you mean by "gambling" in relation to stockmarkets.

Third parties offer services like spreads CDO's and binary bets (which actually are gambling).

Stock markets act as a market i.e. introducing investors to companies that need capital for example my latest buy was an American Investment trust Tetragon with out a stock market how would I be able to invest in them ?

Re: The Crash of ’87, from the Wall Street Players Who Lived It

#20

Post by marak830 »

cm2187 wrote: post #17
liotier wrote: post #11

Earlier quoted context omitted.

> What benefit does the stock market provide to us ? Direct benefit: liquidity - whether you need to buy or to sell, you have a place where you'll find a counterpart quickly. Indirect benefit: information - just watching the bets lets you have an idea about how much people with skin in the game value things, letting you take better decisions about resources allocation.

And the benefit of liquidity is to reduce your risk. If you change your mind, need some cash quickly, or even simply want to know what the market thinks your stock is worth, you need liquidity. If you don't have observable and executable prices, you may struggle to find a buyer for that stock when you need it (delaying a home purchase or exposing you to future changes in market sentiment / health of the company) and…

Liquidity, I'm sorry didn't you invest in that company? If you can find a buyer for that percentage, okay cool, but nothing about investing should revolve around if you need liquidity all of a sudden.
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