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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

#21

Post by marak830 »

maneesh wrote: post #15
marak830 wrote: post #14

Earlier quoted context omitted.

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.

That's not a profit. Thats temporary extra funds. A profit is performing a service that costs you less than you charge the client.

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

#22

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.

Direct: I can understand.

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

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

#23

Post by wskinner »

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?).

Markets aggregate information in a (usually) efficient way. Information is useful to different people in different ways. Just to take one example, if the stock price of a company falls and stays low for a whole, that could reflect some negative future prospects for the company, which traders know about. That could affect my decision to move across the country to work for that company. That is valuable to me. Since you asked for a source, I’ll give you one: pick up any introductory economics textbook.

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

#24

Post by dagw »

marak830 wrote: post #20
cm2187 wrote: post #17

Earlier quoted context omitted.

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.

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.

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

#25

Post by hugecynic »

marak830 wrote: post #21
maneesh wrote: post #15

Earlier quoted context omitted.

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.

That's not a profit. Thats temporary extra funds. A profit is performing a service that costs you less than you charge the client.

> That's not a profit

that's exactly what he said. to not have to turn a profit yet remain in business.

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

#26

Post by consz »

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…

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

Let's even suppose you're right, and it is only gambling -- why should it be disallowed?

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

#27

Post by consz »

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…

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

What, in your mind, is the difference? I think it's a reasonable viewpoint to say that all investment in a business is a speculative bet (ie. gambling) on its future. In that sense, shorting is no different than going long (you just believe it's going the opposite direction and want to express that viewpoint to the rest of the market).

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

#28

Post by charlesdm »

marak830 wrote: post #20
cm2187 wrote: post #17

Earlier quoted context omitted.

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.

You clearly haven't invested much then. Investing in the public markets is different to investing in private equity -- the former is generally highly liquid, the latter illiquid.

Illiquid investments need to generate higher returns to make up for the fact they're illiquid, in comparison to liquid ones.

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

#29

Post by charlesdm »

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.

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

#30

Post by lifebeyondfife »

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…

    *At what point does almost anything else you mentioned help the business?*
Firstly, it's a market place. The business and investor need to find each other.

To create the market place, you must understand that different investors and different businesses have use cases that you don't need, such as "almost anything else" I mentioned.

    *Everything else seems likes gambling, imho*
One of the dimensions is risk profile. Some investors want risky positions in highly leveraged trades e.g. buying a lottery ticket. Some though want a minimal return on an almost sure bet e.g. Italy won't be beaten by San Marino at football.
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