[BaseballPhysics]

> Believe it or not, investing is an activity that, under the correct circumstances, leads to the benefit of the investor, the company, and the economy in general. I personally seek this behavior that's beneficial to society in general

That sounds very noble.

Of course, the reality is the vast majority of people trading financial instruments do it for one reason: to enrich themselves (or, in this case, to entertain themselves). Everything else is a side effect as a consequence of regulations creating incentives that lead to socially constructive outcomes.

> so you're betting that other people have undervalued a company

That's... kinda the entire point of active trading.

I personally don't believe it. In general I'm an efficient markets guy. But there are a lot of active investors, including mutual funds, hedge funds, etc, that operate exactly on this principle.

[dragontamer]

> to enrich themselves

Yes. Because the underlying 5% to 15% gains due to general economic growth is one of the most reliable ways at building wealth in this country. It provides a service to companies who need money today for their expansion (through the IPO and secondary-offerings mechanisms). It provides steady, long-term growth to investors looking for a place to park their money.

Its not only good for the country, it is also a relatively reliable way to grow money for everyone.

Betting beyond this is unreasonable, and unlikely to make yourself any money. The $700,000,000+ sunk into BBBY this past 6 months is proof of that. (600-million shares at a bit over $1 per share, as BBBY's board of directors printed 600-million new shares to profit over the Ape's stupidity / gambling behavior). Throwing good money at a company that failed to make its bond payments in Dec 2022, while the Board of Directors is printing stock like no tomorrow is... well... its pretty bad.

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Look, if you're going to pretend that you were gambling on good odds or pretending to enrich yourself... at least choose a stock that wasn't so obviously eating the Apes alive for months. We literally can measure the amount of money that they lost by multiplying the secondary-offering prices with the number of shares printed.

[criddell]

> It provides a service to companies who need money today for their expansion (through the IPO and secondary-offerings mechanisms)

I get that issuing stock is a way for companies to raise capital, but once it’s out there, how does a company benefit when I buy 100 of their shares from you? Is it different than the used record or book market?

[dragontamer]

Each time someone buys a stock, the stock value rises (meaning the next secondary offering will be able to achieve more money raised with less shares issued).

The stock value rises because you didn't buy 100 shares from me per se. You bought the 100-cheapest shares on the market, which naturally raises the price.

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Lets say the market depth looks like the following:

* 5 shares available at $95.20

* 15 shares available at $95.21

* 30 shares available at $95.22

* 40 shares available at $95.23

* 80 shares available at $95.24

By buying 100 shares, you'll have wiped out the order book from $95.20, $95.21, $95.22, $95.23, and part of $95.24. The order book looks like the following now:

* 60 shares available at $95.24

This means your purchase has caused the stock to rise in value by 4 cents in this convoluted example.

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Later, when the company sells 100,000 shares in a secondary offering, they'll be able to do it at a price ~4-cents higher than before. Thanks to your purchase. Similarly, each time they put for shares for sale, it adds to the order book / market depth as sales.

IE: The company can't just sell all 100,000 shares at $95.24. No one is buying $95.24 "right now", so the shares simply won't move.

To have a chance of selling, the company needs to lower the price, and offer the 100,000 shares at $95.23 cents. Someone's probably buying at that point, but it won't be for 100,000 shares. Etc. etc. The company continues to search for the price where the market is willing to buy its shares.

But whenever it decides to do this process, that company is at 4-cents higher thanks to your 100-share purchase.

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Of course, all this theory goes to absolute crap when a company with 117-million shares (like BBBY in December 2022) decides to just hype up the apes and sell them 600-million new shares that didn't exist before. Of course the prices would collapse, that kind of environment makes it impossible for prices to go up at all.

There is also a serious moral question here: was it moral and correct for BBBY to sell these 600-million new shares? (And if it was immoral, did they break a law when doing so?). Remember: the board of directors is supposed to represent the will of the shareholders. Was it really the shareholder's desire to be diluted by a 1-to-6 ratio?

[criddell]

So it’s not very different from the used book market. A book that sells well on the secondary market might get another printing which benefits the rights holders.

[dragontamer]

The... opposite.

Additional printings of stock devalue the current stock / shareholders. Its a way for the company itself to raise money, but at the cost of everyone else.

What you hope for is for the company to do a "share buyback", which effectively destroys shares. The company goes to the market, buys up a bunch of stock and then locks it away. It means all the shareholders become collective owners of those old shares, so everyone's value goes up.

But yeah, you're close. I guess my point is that the shareholders are a complex-piggy bank for the company. Shareholders like it when they get money, they (usually) don't like it when they get devalued. (This odd case with BBBY aside: where meme-stock buyers cheer at the printing of stock that devalued the company)