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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

#31

Post by bildung »

charlesdm wrote: post #29
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…

In addition to what others have said: an opportunity to invest. There are plenty of great investment opportunities around, but not all can be had at the click of a button. It makes it easy for an investor living in France to invest in a US tech company.

How would that work? The company doesn't get any money from you - it already sold its shares at the IPO.

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

#32

Post by MandieD »

bildung wrote: post #31
charlesdm wrote: post #29

Earlier quoted context omitted.

In addition to what others have said: an opportunity to invest. There are plenty of great investment opportunities around, but not all can be had at the click of a button. It makes it easy for an investor living in France to invest in a US tech company.

How would that work? The company doesn't get any money from you - it already sold its shares at the IPO.

But the future ease of trading said shares added to the price people were willing to pay for them at the IPO.

Plus, for more established companies: the prospect of regular dividends. That's not as much of a thing as it used to be, though.

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

#33

Post by charlesdm »

bildung wrote: post #31
charlesdm wrote: post #29

Earlier quoted context omitted.

In addition to what others have said: an opportunity to invest. There are plenty of great investment opportunities around, but not all can be had at the click of a button. It makes it easy for an investor living in France to invest in a US tech company.

How would that work? The company doesn't get any money from you - it already sold its shares at the IPO.

1. It offers owners and/or founders of the company liquidity, which is essentially why they started the company in the first place.

Just because you own an amazing company doesn't mean you want to keep your entire net worth in a single stock.

2. I would buy Apple shares if I could sell them at a moments notice. I wouldn't if I couldn't.

3. A liquid investment is generally valued higher than an illiquid one.

4. A higher valuation means the company is able to raise funding from the market at a later stage, by selling additional equity (if required) -- this is relevant for the company.

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

#34

Post by Retric »

dagw wrote: post #24
marak830 wrote: post #20

Earlier quoted context omitted.

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.

nothing about investing should revolve around if you need liquidity The knowledge that I can get out of my investment any time I want at the current market price makes me much more willing to invest in the first place. If I know that it can take several month to get out of an investment or that I have to sell at a discount to get a fast deal then I'm more likely to sit on more of my money in case I need it quickly.

In theory that's a big deal. In practice most people are looking at days to weeks to liquidate stock and that's not a big deal. As your holdings go up, into the billions, it can take months to years to unwind major investments without tanking the price. Further, having ~six months of living expenses outside of the market is considered prudent anyway.

However, the reality is if the market disappeared today informal markets would quickly take it's place consider what happens to pre IPO stock.

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

#35

Post by technofire »

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…

> despite the fact you can directly purchase their shares

Actually, most people could not directly purchase their shares if we didn't have a stock market. Companies in general would be owned only by relatively wealthy people or by other companies. Stock markets allow more ordinary people to share in the profits of companies. They democratize the ownership of the means of production in society.

> (which they offered to gain temporary income to make purchases before their cash flow allowed)

The income raised by stock offerings is not temporary; it is not a loan to be paid back. That capital becomes part of the company. The company might use that to purchase assets that stay part of the company or to buy inventory which it will then sell resulting in getting that money back plus profit.

> Once the business sells a portion to investors, those portions can be resold.

Without a stock market, they could not be resold without great difficulty. Investor A, who wanted to sell his share, perhaps after new management had taken over and was now driving the company into the ground, would have to find other another investor, Investor B, to buy it, and if Investor B didn't want to purchase the exact amount Investor A was selling at a mutually agreeable price, Investor A would have to begin a new search to sell the remainder of his share. This is one way liquity is such a big help.

> making me wonder how it was ever allowed.

The buying and selling of things has never needed to be explicitly allowed; in most modern nations, individuals are free to buy and sell things they own.

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

#36

Post by lmm »

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…

> 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.

You'd have to find an investor who wanted to purchase 20% of your company, which is quite a big ask in a lot of respects: they'd be very heavily exposed to one single company, their risk requirements would have to align exactly with yours, they would have to be using the same currency as you. Bottom line is, you'd get a pretty poor price - which is why the institutions that end up buying 20% of companies are the big banks who can slice that exposure and find buyers for the different pieces. (Just like if you're trying to source a given component for manufacturing, you may well end up going through a broker and an importer rather than dealing directly with whoever makes that component). If the banks weren't able to give a better price, no-one would sell through them.

> What the value of my countries dollar happens, has no effect on the percentile of my company.

Sure, but if I'm a Japanese pension fund and the value of my investment drops by 5% because the dollar has weakened against the yen, my investors are going to ask me some awkward questions.

> At what point is it not about the investment about the business, and gambling about how it will go in the future(eg shorting).

It is investment: no-one's doing this for fun (well, maybe a few people are, but they're only hurting themselves if so), they're doing it to make money, which means figuring out what's actually valuable. At the end of the day the only money going into the system is business profits, so the only way to make money is to do something that makes more money for the economy (or, sure, you can do zero-sum bets - but that's not a profitable business to be in in the long term).

> That and the whole system akin to it, is the part that is making me wonder how it was ever allowed.

There's no "allow"; it's a free country, you can buy and sell stuff you own. But the reason the markets are active is because they're productive.

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

#37

Post by whatok »

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…

Might be good to start a thread on this rather than hijacking something tangentially related.

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

#38

Post by technofire »

marak830 wrote: post #22
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.

Direct: I can understand. Indirect: that seems like a losing game. Why would gambling on a companies future ever help anyone(except the lucky?).

> Why would gambling on a companies future ever help anyone

Most transactions in the market are not gambling. Trades happen, yes, but that is because the prospects of companies are continually changing. When it became apparent pretty much everyone would move to Netflix and streaming video, would you want to continue holding Blockbuster stock? No; you would want to sell it.

People who simply "gamble" in the market lose money about as often as they gain it, and soon stop. Hedge funds and mutual funds generally try to invest in shares on a longer-term basis rather than continually trading them; trading incurs transaction costs, and if an investment was correct and is generating better-than-benchmark returns there is no reason to sell it.

The "day trading" books you might see at your local Barnes and Noble are get-rich-quick books and are not representative of the actual professional investment industry.

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

#39

Post by lmm »

marak830 wrote: post #22
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.

Direct: I can understand. Indirect: that seems like a losing game. Why would gambling on a companies future ever help anyone(except the lucky?).

> Why would gambling on a companies future ever help anyone(except the lucky?).

Prediction markets are the most efficient way to make societal decisions; they allow everyone to combine their information and predictions without having to directly coordinate with each other. There's academic literature arguing they'd be the best way to do politics etc. At the moment all we do with them is capital allocation, but that has real-world effects: ultimately the idea is to give more money to companies that can use it better (so that they then e.g. build more factories, hire more people, make relevant buyouts) and less money to companies that will make less good use of it.

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

#40

Post by matwood »

Retric wrote: post #34
dagw wrote: post #24

Earlier quoted context omitted.

nothing about investing should revolve around if you need liquidity The knowledge that I can get out of my investment any time I want at the current market price makes me much more willing to invest in the first place. If I know that it can take several month to get out of an investment or that I have to sell at a discount to get a fast deal then I'm more likely to sit on more of my money in case I need it quickly.

In theory that's a big deal. In practice most people are looking at days to weeks to liquidate stock and that's not a big deal. As your holdings go up, into the billions, it can take months to years to unwind major investments without tanking the price. Further, having ~six months of living expenses outside of the market is considered prudent anyway. However, the reality is if the market disappeared today informal ma…

I hope one to one day have enough wealth that it takes months to liquidate my stocks. The number that can’t be liquidated almost instantly is very large.

Additionally, IPOs are almost priced incorrrectly, and show the problems with the informal market.

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