[nl]

> The money public investors pay to exiting shareholders do play a major role in the economy - it enables the early, IPO/angel investors to exit, and allows them to convert capital locked in the established startups to new startups, without waiting to "cash-out" using the company's profits (which may be years away).

Sure, this is true. But there aren't any early investors in Exxon (for example) cashing out this way.

[chii]

> But there aren't any early investors in Exxon (for example) cashing out this way.

The process is continuous, until the day Exxon dies or closes shop. The chain of "cashing out" needs to be maintained for the chain to even exist in the first place.

If there were no "secondary" investors, then the only way for an initial investor to reap their returns is via the profits generated, which can be many many years away.

But these "secondary" investors are in the same position - they may want to only invest for a set interval of time. So they have to "cash out" by selling to "tertiary" investors. And so on.

And as a company becomes more mature, their expected returns are more certain, and also lower (i.e., lower risk). So the tertiary investors are people who don't want to take high risks, and want a steady stream of income.

The problem i have with a lot of people's misconception is that they think that buying/selling shares are useless activities, and does not benefit the overall economy.

[WJW]

I have been thinking about this a lot. The difference in preferences between classes of investors can be be huge. Pension funds and the like have massive amounts of capital and a constant demand for cashflows but relative low manpower, so they are looking for very stable investments. Angel investors are almost the opposite as they have much more "labor" available relative to their capital, so they are looking for speculative stocks where they can contribute knowledge and connections to make a difference. There is a whole spectrum of investors between these two and it makes sense for stocks to slowly migrate to being owned by the "boring" end as the underlying company matures.