Stock market is economically important only when company issues new stock. Apart from that it's just a huge casino where people like to play with their or other peoples money.
(b) The primary market cannot exist without the secondary market because no one will buy into your IPO if they don't think they'll be able to turn around and sell the shares at some point. This is obviously the case for securities that generate no income (stocks that don't pay dividends, etc.), but it is also true of other securities for a slew reasons. This is the core of the the complex and amorphous notion of liquidity.
(c) By publicizing the value of the underlying assets, prices in the secondary market inform the wider world about the performance of the managers of those assets. Investors who believe those managers are doing a poor job can put up their money, throw the bums out, and bring in someone who will do the job properly.
All of these things support the efficient allocation of capital and ultimately shape the behavior of all economic actors. Capitalism requires that this mechanism works fairly well.
There are people that have money and people that need money and stock market is a great mechanism that tricks people who have money into parting with some of them temporarily or permanently and funding the people that need money.
Companies get money from selling their stock and use it to fund their actions.
People with money buy their stock and between themselves use their stock as casino tokens to legally gamble.
Without the gambling part there'd be much much less interest in giving money to the companies. People would have to believe that your company will grow. With stock market people just have to believe that there will be some suckers that will buy the stock for more money. (the thing you said in (b))
Most investors are in not to own a part of the great company but just for the gamble.
I just think that price of the token is mostly meaningless from the point of view of the companies that issued them. If you own 51% of the tokens you don't care how much people are pricing them because you own the actual company and you care mostly about the company itself. It's not like you could just dump your 51% on the market without making the sky fall.
Price has some importance if the company wants to get more money by issuing more tokens and it's also very important for various managers who got some of the tokens as their compensation. I'm not sure if that last one fact is a good thing. Managers should concentrate on their jobs of running the company not on making an impression that their company will do well in the future but you can't effectively ban them from playing. They would play anyway via proxies.
I believe that price of tokens does not say almost anything about companies condition. It only says things about random peoples opinion on the company future condition which I think correlates very weakly with actual current condition and the actual future condition.
Determining the price of token more precisely has no more value to people not involved in playing this game of buy/sell than precisely determining the value of WoW items.
Stock market gambling just switched from game played by people to game played also by bots. I think it's a nice thing that there's a place both for humans and bots in this game. I don't share the opinion that people that use bots are somehow cheaters. They just play they game the way they like and don't seem to be destroying it in the process.
I believe that most stocks have far far more liquidity than is necessary for people to feel comfortable investing in them. More liquidity has very little value at this point.
It's a problem because thousands of bright minds are piped into the financial industry when they could be contributing much more to society.
HFT doesn't matter at all to long and medium term investors that actually provide the value in the stock market(which is providing capital to help grow companies).
Just a decade ago you needed to buy into a mutual fund and pay sales loads and expense ratios over 1%.
Now, you can own an ETF containing a piece of each of the Fortune 500 companies for an expense ratio < 0.1% because spreads in those 500 companies are narrow and trade constantly.
Medium term and long term investors love HFT because it saves them 0.9% in yearly expenses. If you've got 100k invested in SPY instead of some Fidelity fund, HFT is saving you $900 a year.
Would you rather I build a photo-sharing site? Chase tenure with esoteric publications?
Do you even know why I do HFT? I do it because it's intellectually stimulating and pays well, plus I work in a small firm of ten smart people and no corporate politics.
As for the value to society you don't believe I'm providing, my arbitraging makes it possible for products like ETFs to exist. Most retail investors would be best served with an index fund, and my work ultimately provides that service.
You're already making the judgement that the work he's doing isn't valuable, finish it up and judge what he should do.
What would a stock be worth the day of the IPO if there was no way to sell it the day after the IPO?
1. Dividends.
2. Stock buybacks.
meanwhile, people buy based on their expectation of future price.
So, this is a casino where the dealers are trying to make the chips worth more. It doesn't matter why, this is just reality (generally). But the dealers don't just deal chips all day - they spend real money in the real world, and loads of it. On sales, manufacturing, advertising, research and development, infrastructure, you name it. All to (again, generalizing) increase the price their chips are being traded at. (For various reasons they have incentive to do this, or if not incentive then at least philosophy/approach.)
Say you meet the dealer named (CEO of x). Now if you can convince him that doing y action in the real world will increase the price of his tokens, he might just do it.
Even if it means spending millions or billions of his company's money.
This is the status quo.
Now, what are the results of this status quo? Does it mean that companies will do whatever will increase their share price? No. Does it mean companies will do whatever they expect will increase their share price? No. Does it mean share price realistically reflects a company's investment in doing something to become financially or objectively or in some way convincingly "better"? No.
Nothing follows from this, but there are some things that almost follow.
One of them is that in the real world real money is being spent trying to get real customers, to get real innovations, and so on.
In a way, the precisely discovered price of a casino token is like a carrot on a stick. It points somewhere, (to stretch the analogy it points up or down), and does so as a result of the rider moving it.
In this case the 'rider' is investor opinion. (Alternatively, though false, you can assume that all information in the world is factored into the price, that the price is somehow 'efficient' with respect to all the information in the world about that company that's public. While ridiculous and false, this is/was a dominant or important academic model for a long time.)
What I'm getting at is that it's a lot simpler than just being tokens. There is a complex system here that you can draw some generalizations from. I mean, to take nothing else, just remember that when a company's "token" price gets too low, its investors will vote for an acquisition in cash by a bigger company in the same industry at a premium over its "token price". That would have a very real effect in the real world. It's just so much more complicated than you give it credit for. Is it good? Should we have it?
Well, all the recent private equity activity says, you know, not always. But there are some interesting things that happen when you put your company into the 'token world.' It's most certainly not just tokens.
Because they own some stock and/or because that's what in their formal/informal job description.
When I said "casino" and "tokens" I had in mind randomness of the game and that value of the stock is virtual value that humans assign to it in context of the game they play.
Apart from that rules are completely different from any game played at the casinos.
I don't think that anyone who makes decisions at Google actually does anything to increase their share price. And in my opinion that's because they get that in stock market there's a "funding part" and "gambling part" and what they were interested in was the funding (it's basically free money plus some transparency that builds up the trust of your customers). Gambling does not concern them.
> One of them is that in the real world real money is being spent trying to get real customers, to get real innovations, and so on.
Yes. But that real money comes only from the moment when company introduced its tokens into the casino. What gamblers do between themselves after that should not concern company in any practical way. Unless they did something stupid like putting more than 51% of their stock on the market.
Can company even take part in gambling of their own stocks? Isn't that insider trading?
> I mean, to take nothing else, just remember that when a company's "token" price gets too low, its investors will vote for an acquisition in cash by a bigger company in the same industry at a premium over its "token price". That would have a very real effect in the real world.
Yes. There are some points of contact between "funding part" and "gambling part" but they are in place just to spice up the game. I don't think they are healthy for the companies because running company is about physics and increasing market price is about fooling people into thinking that you do more than you actually do.