I'm trying to understand some fundamentals of what it means to invest in the stock market. This question and the answers have been helpful to me:
That helps me understand the fundamental value of stock: ultimately each share of a publicly traded company represents ownership of a piece of the company. This is demonstrated concretely when, say, a private investor purchases the entire publicly traded company from the market. The board of directors - which represents the shareholders - and the acquisition company negotiate an agreed-upon price per share of the company. The private investor then pays each shareholder that price per share for the company. The private investor pays a price for each share that seems reasonable as a value for the talent of the employees and managers, the various buildings and assets of the company, the expected future profit stream of the company, etc. That is real concrete value and as a shareholder I own a piece of that value. Any given stock trade before any such corporate-wide acquisition (or liquidation) represents, on a much smaller scale, two investors doing the same analysis and agreeing upon a price for that share of the company.
All well and good. I feel I understand a bit better intrinsic value of stock.
My question now is: what value do I provide as a shareholder in the secondary market? In the primary market, things are pretty clear: a given business needs money and they choose to get money by "going public" and selling shares of the company. If I purchase these shares at that time, I get a share of their company, and in exchange they get my money with which they can invest and do greater things as a company.
The value of the shareholder after this initial offering, however, grows hazy for me. The following question and answer certainly makes the value to the said company seem pretty indirect:
So let's take this a step higher, beyond the company whose shares are being traded: what value am I adding to the market when I buy stock after the initial IPO? How am I helping the market in general (and therefore society) by purchasing stock in the secondary market? I'd appreciate any help to clarify this.