> When you buy stocks, the money goes to finance the business.
Only if you’re buying directly from the business, which you’re usually not. Usually you’re just buying from another shareholder (could be another individual, a mutual fund, a hedge fund, whatever).
The proceeds may indeed end up filtering into the rest of the economy (I may sell you the stock to pay my mortgage, the hedge fund pays their traders), but the money doesn’t fund the business of the traded company.
If you cannot sell your founders shares, they're worthless. Companies issue more stock to sell and raise capital all the time.
> the money doesn’t fund the business of the traded company.
Not directly, but indirectly it does. It makes the stocks valuable so the company can create shares and people will buy them. You know, like those stock options employees get.
> Companies issue more stock to sell and raise capital all the time.
Sure, but that’s still a small fraction of most trades most of the time. When companies sell stock (long after their IPO) the sales kind of have to be dripped out as a small percentage of the trading volume of the stock or it would negatively affect the price (more than considered acceptable). If a company or its insiders are most of the sellers by volume (again, if a company has been public a while), that’s a bad sign for the company.
> Not directly, but indirectly it does.
Also yes, but I would quibble that this is moving the goal posts from your original statement :). “The money goes to finance the business” seemed like a pretty direct declarative statement that didn’t touch on the nuance of “buying stock -> pushes price up -> makes debt cheaper for company/makes further stock sales attractive”.
I get the point you’re making and don’t entirely disagree. But in a proud HN tradition it read as a confident and straightforward declaration that describes the (IMHO) minority case, but not the more common case and sweeps important nuance aside.
Please don’t take that to mean I thought your thoughts or understanding were also lacking in nuance, I didn’t. But I figure there will always be people coming through these threads who don’t know the nuance, they’ll read the highly upvoted top comments and move on, thinking they’ve improved their understanding, and they will be led astray, so I was responding to the words as-written.
In my defense, none of this can be explained in a short paragraph. And if I wrote a long treatise on it, nobody would read it! People read short things. So I stick to the Newtonian Mechanics explanation rather than the Einsteinian/QM explanation.
BTW, understanding how and why free markets work is not very intuitive. It took a long time for me to understand it, and long conversations with my dad who had a PhD in economics. About 98% of what lay people implicitly believe about economics is intuitively obvious, but quite wrong.
The old hoary "rich people hoard money" is one of those tropes.
Only if you’re buying directly from the business, which you’re usually not. Usually you’re just buying from another shareholder (could be another individual, a mutual fund, a hedge fund, whatever).
The proceeds may indeed end up filtering into the rest of the economy (I may sell you the stock to pay my mortgage, the hedge fund pays their traders), but the money doesn’t fund the business of the traded company.