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Comment by marak830 | Hacker News Reader

I see and almost understand what you are writing, but how does this help the original business.

Say I'm business A. I'll offer a portion of my business (say 40%) with the offer that you will reap 40% of my profit. (Assuming one person pays in for that whole value).(edit: I offer this as the income will allow me to expand where as otherwise I'd have to wait longer depending on profit)

At what point does almost anything else you mentioned help the business?

Everything else seems likes gambling, imho, and I still can't wrap my head around why it's allowed.

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The more lively the capital market is, the more money is available and the better deal the company get when getting money from the market. This is why companies prefer to list themselves on the bigger, more famous exchanges.

If you need $100m, it matters whether you're giving up 10% or 20% of the business for that money.

(A major benefit to the public of financial markets is diversified pension funds with good returns, btw)

    *At what point does almost anything else you mentioned help the business?*

Firstly, it's a market place. The business and investor need to find each other.

To create the market place, you must understand that different investors and different businesses have use cases that you don't need, such as "almost anything else" I mentioned.

    *Everything else seems likes gambling, imho*

One of the dimensions is risk profile. Some investors want risky positions in highly leveraged trades e.g. buying a lottery ticket. Some though want a minimal return on an almost sure bet e.g. Italy won't be beaten by San Marino at football.

So we do admit the words bet and gambling apply to derivatives, at some point in these discussions. Fine.

The reason why folks must be confused is that, non Stock market gambling is seen as a vice and/or crime by much of human society. There are religious edicts and/or laws against this practice in most places. The Stock Market getting a free pass from this view - and most people (including myself) not knowing about the nature of this system until they dig a bit deeper - seems unfair.

Las Vegas is looked upon as lascivious even when some of the gambling requires skill (Poker / Blackjack) - derivates trading is instead marketed as a great career where the people doing are superheroes.

I’m not bitter about this even if the message sounds so. Just fascinated by the asymmetry of perception.

I remember when I learned how to day trade foreign exchange with a simple technical analysis strategy. When I started I was ready to have to learn all kinds of advanced maths and expected to "level up" analytical thought.

Then I learned it's all about risk management and absolutely technical analysis trading is gambling. I agree with you, blew my mind!

If I buy a dentist practice from a retiring dentist that's no different from me buying shares of IBM from someone who is retiring.

>Everything else seems likes gambling, imho, and I still can't wrap my head around why it's allowed.

Let's even suppose you're right, and it is only gambling -- why should it be disallowed?

Because it is gambling with real world consequences. Stock markets influence company behavior which in turn have very real effects over people lives (layoffs, salary reductions, increased hours). So it is a conflict of interests between people that are gambling and people who are just going around with their lives but have no power to counter market gambler movements.

I think you're ascribing more market->company linkage than is actually present, possibly significantly more.

The market (in general) rewards companies who show a prospect of increasing profits. In other words, they reward healthy company behavior the same way that a calendar would reward an effectively competing company or a biological entity (with continued survival and thriving).

It's an imperfect mechanism for sure, but in general, healthy companies get rewarded and unhealthy companies get pressure to become healthy or to die. I don't see that the problems outweigh the benefits.

you can raise capital by selling more shares.

This allows you, as a business, to not have to turn a profit and still be in business.

That's not a profit. Thats temporary extra funds. A profit is performing a service that costs you less than you charge the client.

> That's not a profit

that's exactly what he said. to not have to turn a profit yet remain in business.

Temporary extra funds are exactly what you'd want if you saw that conditions were right to open a factory you couldn't afford, for example. Your shareholders are people who would like to take on the profit (and risk) of such an investment. This works in everyone's favor.

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