| > When you invest in a startup, the money directly goes to the economy to build up a business, to create jobs and to actually contribute to the trickle down economy. On the contrary, investing in the public market is simply buying stocks from other investors. This was a very informative and well-written article, but it pains me to see this misconception. Buying investments in the secondary market does not in any way "keep money out of the economy". Aggregate savings equals aggregate investment. Period. It's one of the most fundamental tenets of macroeconomics.[1] How do we square that with what we actually see? Certainly it's the case that if you go out and buy 100 shares of Apple, it's not like Apple receives a check. Yet for every buyer there has to be a seller. If you buy 100 shares, the seller now has $120,000 of liquid cash to reinvest somewhere else. That seller may then originate a new primary investment himself. Or he may turn around and make a secondary investment, in which case the next seller faces the same choice. He may even just park the cash in a bank, who will then use his reserves to make loans (primary investments) or buy securities (secondary investments). But either way every secondary investment results in a net cash balance, that then has to be reinvested by the next party in the chain. No matter how long the chain is, the supply of secondary investments is fixed. Any new capital invested in the secondary market must result in new economic investment in some way or another. [1] https://en.wikipedia.org/wiki/Saving_identity |