People invest in the company initially using an IPO. Now I don't understand how trading the stocks with others (who didn't participate in the IPO) would benefit the company.

Also, why do the people invest in stocks in the first place when some companies like Google don't even give dividends (part of their profits) to the shareholders?


2 Answers 2

  1. The company doesn't benefit directly. In fact listing and having shareholders is a pain. It involves extra regulation and expense. Trading may drive a share price up on the basis that strong buy sentiment can be seen as an indicator of a well run company. Indirect benefits include:

    • A high share price helps future capital raising as they have enhanced reputation (for want of a better term) and would have to sell less of the company to for $X in capital.

    • Additionally a high price or strong/steady performance can be used as an employee incentive if trading raises the price.).

  1. Basically to sell after a rise in share price.

In sufficient quantities, share ownership may come with voting rights which may allow an influence in the running of a company. Having that may allow you to do things that you believe will raise the price allowing you to sell at profit. There may be other reasons (ethical perhaps) why you want to do that. Who knows...? I suspect in general just for $ usually.

  • Company owners absolutely gain money, massively, from becoming public, which is why company owners do it. (A) company owners receive a massive amount of money from the IPO (and indeed company per se receives a massive amount of money from the IPO). (B) As well as the IPO, companies then offer more shares at a later stage, again bringing in a vast amount of $ for both the founders and the company per se.
    – Fattie
    Aug 29, 2020 at 16:52
  • (Everything else in this answer is correct, of course.)
    – Fattie
    Aug 29, 2020 at 16:53
  • @Fattie Yes I agree, but the question was about the company benefiting from others trading on secondary markets not IPOs. Your point B is my bullet 1. Aug 30, 2020 at 10:08

I don't understand how trading the stocks with others (who didn't participate in the IPO) would benefit the company

I suggest studying Prisoner's Dilemma and indeed making a study of all of game theory.

(A starting place might be https://www.amazon.com/Prisoners-Dilemma-Neumann-Theory-Puzzle/dp/038541580X/ )

Stocks are a pure belief-based self-referential shared game system.

They have utterly no value, whatsoever.

why do the people invest in stocks in the first place when (there are no dividends)

It's very simple to explain this - but hard to grasp.

(1) It's a fact that you, Archer, have realized that stocks have no inherent value and it's only a game-theory milieu.

OK - you can agree that (1) is a fact.


(2) It is a fact - again this is a fact - that most adults on Earth believe that Google stock will be worth a lot in one year and in ten years. That is a fact.

You must comes to terms with the basic tension between 1 and 2.

Looking at point (2), let's say that you are "not" one of those people. Agreed?

So (1) is true, and furthermore you are not one of the people in (2). That's completely true. But. Is point (2) true?

Take point (1) and put it in a suitcase in your head. Point (1) is completely true, but it does not influence or affect point (2). Point (2) is incredibly true. It is deeply and profoundly true. Point (2) is as true as and simple factual statement like "London is in England".

Point (2) is so true that you can bet all your wealth on it.

You may think you know "more sensible" investments, say, real estate. But I can tell you 100 reasons why real estate can go wrong. (Note that to begin with the only reason real estate is stable is because of national governments who shape the nature of the land title.)

Versus that shakyness, we have the absolute fact of point (2).

Stocks have one and only one actual value - which is absolutely abstract and theoretical. If some entity wants to take over Google, they can sometimes do that by "purchasing a lot of the stock". Not only is this "the only value" of stocks, it is the definition of stocks, it is what they are. Of course, this is all-but abstract and theoretical - how often is Google taken over? But yes, this is the one and only "theoretical underpinning" of what stocks are other than a large self-referential game theory milieu.

Note that if you own "a share" of a normal entity (not a public company) that is quite different. So, if you own 30% of a coffee shop, you quite literally "own" some thing, just like owning a car or a sofa. Shares in public companies have no relationship, at all, to this concept. Only in the extreme abstract (some classes of) shares in certain quantities may have voting rights on certain issues and, as mentioned, if some party P wants to "take over" the company they will have to buy a certain percentage (1%, 12%, whatever) of the shares which (in an incredibly abstract sense) means there may be purchase pressure in the future. Other than that, as mentioned, shares in public companies are 1000% psychological - pure game theory.

  • I noticed that you often say that stocks have no inherent value and that their value have no connection to any kind of fundamentals. What is the name of this theory? Where can I read more about it?
    – Flux
    Aug 29, 2020 at 16:35
  • @Flux , I suggest anything "game theory and the markets". Example, blogs.cornell.edu/info2040/2012/09/18/… Humorously, if you google "What is the intrinsic value of a stock" the very first hit you get is a reddit response "The hope that someone in the future will pay you more than you paid". Investigate freely yourself the notion "intrinsic value of a stock of a public company". You will find that the only intrinsic value is, as I explain, the very abstract one ... "in a takeover some shares will be bought".
    – Fattie
    Aug 29, 2020 at 16:46
  • Is that what you personally use to invest in stocks?
    – Flux
    Aug 29, 2020 at 16:50
  • @Flux , you cannot "invest" in stocks, you just trade them. (IMO you can "invest" in an index fund, but that's a subtle issue. Even then, really, you're timing it on macroeconomic grounds.) Yes, game theory in general was precisely the epistemological basis of my thinking when I traded for a living. Thanks for asking :)
    – Fattie
    Aug 29, 2020 at 16:55
  • 3
    @Fattie It's a great examples of how you can get downvoted for a rambling and incoherent answer, even if it does contain a grain of truth.
    – richardb
    Aug 29, 2020 at 17:56

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