Understanding shares - where does all the money go?

[hooikk]

I've been trading in the sharemarket for a fair while, but I've never really got my head around this nor did it really matter to me.

When I buy shares, I'm effectively buying a slice of the company. Does this money go directly to the company? E.g. if I buy $1000 worth of shares in company XYZ, they get the $1000?

What happens to the $1000 if the XYZ's share price goes down 50%? Does it disappear? Does the company still have the $1000 sitting on their balance sheet, or is it marked down to $500 based on their share price.

 

[Trembling Hand]

The company never sees the share holders funds after the IPO.

Its just a big game of pass the parcel. Your money goes to the previous holder of the shares. And when you sell your money comes from the new owner of the shares.

The share market has nothing to to with funding companies for growth (well 99% hasn't) Its just a big game of taking money off a bigger idiot. The last one holding is the Biggest idiot. Many will disagree and say they are "investing" because they hold for years but they aren't. We are all traders/speculators/gamblers.

 

[wayneL]

The company never sees the share holders funds after the IPO.

Its just a big game of pass the parcel. Your money goes to the previous holder of the shares. And when you sell your money comes from the new owner of the shares.

The share market has nothing to to with funding companies for growth (well 99% hasn't) Its just a big game of taking money off a bigger idiot. The last one holding is the Biggest idiot. Many will disagree and say they are "investing" because they hold for years but they aren't. We are all traders/speculators/gamblers.

If I can add an analogy:

It is similar to cars. Only the person who buys a new car (the person who buys at the initial float) gives money to the manufacturer/car dealership. So when you buy your POS Falcon new, Ford gets the money. That car may be "traded" many times after that on the secondhand market. This is analogous to the stock market. We are all buying and selling second hand shares to each other.

 

[nunthewiser]

one must add tho , that cap raisings , share purchase plans etc , the money DOES go to the company after the underwriter/lawyers etc etc get there cut and then the pass the parcel game continues with the new stock issued

 

[nunthewiser]

oh and another springs to mind . the company also sees the cash from option conversion too , so to quote TH hands post earlier

Trembling Hand Re: Understanding shares - where does all the money go?

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The company never sees the share holders funds after the IPO.

this is slightly untrue

 

[Trembling Hand]

The company never sees the share holders funds after the IPO.

this is slightly untrue

I did say 99% of the time. lets face it out of all the millions of transactions per day not much are fundraising etc.

 

[Tysonboss1]

Does it disappear? Does the company still have the $1000 sitting on their balance sheet, or is it marked down to $500 based on their share price.

when you buy a company your money goes to the person who is selling.

One other thing to mention about disappearing money is that most of the wealth of the stock market does not exist at all.

eg. if XYZ company had 1 billion shares on issue and the last parcel of shares traded that day at $30 / share, The company would be valued at $30 Billion ($30 / share x 1 billion). however if in 6 months time they are trading at $10 / share then the company would only be valued at 10 Billion. so $20 billion of value has gone, but it never really existed in real terms only on paper, because chances are if all the shares were to be sold at once the price would drop to 1% of the paper value. this is what happens in a crash, to many people try to sell all at once and the price crashes.

 

[hooikk]

so from a company's perspective, it really doesn't really matter how their share price is doing?

Example, the UAL "bankruptcy" fiasco with Bloomberg (link).

If the market panics and drives down the share price of a company like what happened to UAL, would it impact their day-to-day operations? Meaning: Its just the shareholders that are 'losing' money, not the company itself.

 

[Tysonboss1]

so from a company's perspective, it really doesn't really matter how their share price is doing?

Example, the UAL "bankruptcy" fiasco with Bloomberg (link).

If the market panics and drives down the share price of a company like what happened to UAL, would it impact their day-to-day operations? Meaning: Its just the shareholders that are 'losing' money, not the company itself.

Unless the company has debt that is some how secured by it's share price.

But yes generally the company is not affected by it's share price.

 

[ceasar73]

The company never sees the share holders funds after the IPO.

Its just a big game of pass the parcel. Your money goes to the previous holder of the shares. And when you sell your money comes from the new owner of the shares.

The share market has nothing to to with funding companies for growth (well 99% hasn't) Its just a big game of taking money off a bigger idiot. The last one holding is the Biggest idiot. Many will disagree and say they are "investing" because they hold for years but they aren't. We are all traders/speculators/gamblers.

hehheheh lot of idiots out there...im one of em

 

[Shrewd Crude]

Most companies care very much so about the performance of the Share price for a few reasons...
1) directors can get performance shares/options so the higher the share price the more directors/management get paid...
2)managers are accountable and have their jobs on the line...
3)companies that dont perform dont last long (especially when the markets tank like they have)
4)as tyson said, ability of the company to raise cash...
5)ability of company to purchase assets/projects/expand.....
6)without performance the company can leave its door open to raiders...
EG AED... in some circumstances the company that takesover the other one could replace their jobs...
7)with expanson then managers have better paying jobs and are more secure...

Trembling Hand-The share market has nothing to to with funding companies for growth (well 99% hasn't) Its just a big game of taking money off a bigger idiot. The last one holding is the Biggest idiot. Many will disagree and say they are "investing" because they hold for years but they aren't. We are all traders/speculators/gamblers.

I totally disagree with this...The share market might be a big gamble to you, to others I know it is a very professional highly rewarding investment choice... in the current cycle, market risk is much higher...But Some companies will still perform... you just have to spot them...... a few months ago oil prices were killing it, and markets were falling... Oil stocks were torn between the two.. whereas others sectors were falling with the market... If ... If you do your research, you can find great stocks...
never make all in plays unless you do extensive research... Ive gone all in or close to it 4 times now...
good-day

.^sc

 

[wayneL]

Most companies care very much so about the performance of the Share price for a few reasons...
1) directors can get performance shares/options so the higher the share price the more directors/management get paid...
2)managers are accountable and have their jobs on the line...
3)companies that dont perform dont last long (especially when the markets tank like they have)
4)as tyson said, ability of the company to raise cash...
5)ability of company to purchase assets/projects/expand.....
6)without performance the company can leave its door open to raiders...
EG AED... in some circumstances the company that takesover the other one could replace their jobs...
7)with expanson then managers have better paying jobs and are more secure...

On point one, this is why share prices are manipulated upwards by shonky execs... a very bad practice.

On the rest of the points, let's get back to the basis for the share price and platform on which all these points rest.....












...EARNINGS!

It is earning that companies are judged by. It is earnings that financiers and shareholders (both current and potential) want to know about. It is earnings which execs and managers remuneration should be based on.

The share price is merely a reflection of that... plus or minus a bit of sentiment based hysteria on either side of intrinsic value.

Solid earnings = solid share price.

When the forensic analysts see through an accounting subterfuge, thats when share value is destroyed.

So don't give us this crap about price, it's about value.

 

[Shrewd Crude]

On point one, this is why share prices are manipulated upwards by shonky execs... a very bad practice.

On the rest of the points, let's get back to the basis for the share price and platform on which all these points rest.....












...EARNINGS!

It is earning that companies are judged by. It is earnings that financiers and shareholders (both current and potential) want to know about. It is earnings which execs and managers remuneration should be based on.

The share price is merely a reflection of that... plus or minus a bit of sentiment based hysteria on either side of intrinsic value.

Solid earnings = solid share price.

When the forensic analysts see through an accounting subterfuge, thats when share value is destroyed.

So don't give us this crap about price, it's about value.

WayneL,

First of all I dont deal with Companies that have shonky execs, so when my company performs, I have every faith that the SP is performance driven and not manipulation driven...

I posted clear examples of how a company is effected, and how management can be effected by its share price in response to tysonboss, by explaining that Yes 'the company is effected by its SP'...

the Share Price IS CLEARLY ONE measure of performance... there are many measures of performance... just like earnings are a measure of performance...
just like Profits are also... So dont give me this "dont give us this crap about price, its about value".. come on man... no need to be that short sighted and focused...
hey buddy, the best meausre of performance, is what the actual SP is doing...
I get measured by how much I perform and therefore by how much a stock rises..... If my stocks are rising, then management are performing... your thoughts on manipulation brings in another element thats best to be left alone....I have seen manipulation on two occasions by instutional players...


hey, heres a question for you wayneL...
Im in stock XYZ and earnings are rising, but the Share price is falling...
AM I STILL PERFORMING?

.^sc

 

[brty]

TH and Tysonboss have answered what happens to the money perfectly.

Failure to understand what they have written here, basically means a failure to understand what is happening in the market.

It is a game between traders. Some longer term ones believe themselves to be investors.

Those that think short selling was a blight on investment, were also ones who failed to understand the game.

brty

 

[wayneL]

WayneL,

First of all I dont deal with Companies that have shonky execs, so when my company performs, I have every faith that the SP is performance driven and not manipulation driven...

I posted clear examples of how a company is effected, and how management can be effected by its share price in response to tysonboss, by explaining that Yes 'the company is effected by its SP'...

the Share Price IS CLEARLY ONE measure of performance... there are many measures of performance... just like earnings are a measure of performance...
just like Profits are also... So dont give me this "dont give us this crap about price, its about value".. come on man... no need to be that short sighted and focused...
hey buddy, the best meausre of performance, is what the actual SP is doing...
I get measured by how much I perform and therefore by how much a stock rises..... If my stocks are rising, then management are performing... your thoughts on manipulation brings in another element thats best to be left alone....I have seen manipulation on two occasions by instutional players...


hey, heres a question for you wayneL...
Im in stock XYZ and earnings are rising, but the Share price is falling...
AM I STILL PERFORMING?

.^sc

If the share has been bid up for some reason of sentiment, rumour, or overall economic conditions, the share price can fall if earnings are rising. This would be a matter of share price returning to fair value.

It could also be the case that bond yields are rising causing a re-evaluation of share multiples.

In the context of the business itself, yes you are still performing... absolutely. The share price is extraneous to the performance of the business; a crude reflection of the same.

A question for you. If the share price is rising and the earnings are negative, is the business performing?

 

[Shrewd Crude]

hey wayne,
Yes the business could be performing if the share price is rising and Earnings are negative... The company might be reinvesting all its cashflows back into the business and growing the company through taking on more projects which in turn increases capital expenditures and can turn earnings negative...
Key companies who were like this in the Past are New Zealand Oil and Gas... CUE...
almost every one of my big winners over the last 4 years were in stocks with negative earnings, or very very low earnings....Some of these oilers have great projects without current cashflows...
almost all the coal seam gas stocks hold these characteristics...
Its not about earnings mate...
Its about the Share price performance...
THis year I made 200% on RPM, and the company did not earn a dime...

If it were about earnings, then Share prices would not be falling for the general market as most companies have no direct impact to the Recession......
Sentiment is paramount...

.^sc

 

[nomore4s]

I totally disagree with this...The share market might be a big gamble to you, to others I know it is a very professional highly rewarding investment choice... in the current cycle, market risk is much higher...But Some companies will still perform... you just have to spot them...... a few months ago oil prices were killing it, and markets were falling... Oil stocks were torn between the two.. whereas others sectors were falling with the market... If ... If you do your research, you can find great stocks...
never make all in plays unless you do extensive research... Ive gone all in or close to it 4 times now...
good-day

.^sc

This is still speculation which was TH's point..

Making an all in play no matter how "extensive" your research is, is gambling. It might be an educated gamble or a gamble with odds some what weighted in your favour (perceived to be at least) but it is still a gamble.

 

[Shrewd Crude]

nomore4's,
you must be confused...

wayneL-A question for you. If the share price is rising and the earnings are negative, is the business performing?

The share prices are falling, and who knows what next years earnings are going to look like...are you performing...?

.^sc