Stock market confusion?

Question

I have a very limited understanding of the stock market, so bear with me. My question is this: When people sell and buy stocks, does the company profit at all? The company gets money when the first stocks are sold, and then after that people buy and sell the stocks. But the company doesn't get any more money from the buying and selling of stocks, does it? The company has already gotten its money from you, so how exactly does the value of the stock go up? I hope you all understand my question!

Answer 1

When a company becomes a publicly traded company, it now has additional expenses to meet ongoing regulations and it also has to deal with potential lawsuits.

The short answer is the company does not directly benefit from daily movement in its stocks subsequent to the IPO unless it has treasury stock it holds. If the company holds treasury stock (shares of itself), those values will move in lock-step with the market place.

Now as for the value of the stock to go up, it is because the board of directors are incentivizing the CEO and his management team to be great managers and create value for the shareholders, i.e. generate greater amounts of free cash flow over time.

Answer 2

The company almost never has ALL of it's stock outstanding. They maintain Treasury stock which is stock that was out on the market that the company then bought back and canceled the votes of. Now as the traders, (you and I and everyone else who buys and sells the stock on the exchange) determine that we either WANT or Dont Want the stock the price goes up and down. All the while the value of our stock goes up and down as does the stock that is sitting in the company.

Now say that a publicly traded company wants to hire someone and that person wants stock options or just to be issued stock for a bonus. The company can issue their treasury stock to the person as his bonus and it returns to outstanding stock. The company can now say that they gave the employee a bonus of say $1000.00 when in fact they may very well have bought that same amount of stock for $500.00 so in effect they made a $500.00 profit on their own stock.

However to be clear the simple answer to your question is no the company does not make any more money when you or I buy and sell stock on the exchanges. But they want us to want their stock because both the company and the managers own large chunks of the stock and as we trade the stock up their chunks become more valuable.

Answer 3

You are definitely on to something a lot of folks sometimes miss. If I sold 100 shares of XYZ on the market, and you bought 100 shares, and that was the only transaction at that time frame, then you essentially bought from me. Your broker deducted money from your account, paid to my broker, which added it to my account's cash. The only other people to profit from the trade were our respective brokers, the exchange, and the exchange clearing company. The company, XYZ in this hypothetical, got nothing except a new name on the stockholder list.

BUT, if the company holds some of their own shares, say they had issued shares but not sold them, or say there was a stock buyback, then if THEY are selling their own shares, when you buy that company's stock, you are paying the company. For that the company benefits. Still, if your purchase, be it from me, the company, or whomever, results in the price of the stock to hold or rise, then you just helped or sustained the company's market value, which bolsters, in some cases, the company's value to banks and investment houses. Your purchase, likely to be tiny, helped contribute to the sustaining value of the firm when it needs to finance activities or entice prospective partners in some new venture. That is as close as it comes. Of course, if the CEO was paid mostly in stock options and he exercised the options (wherein he had to pay back some of his pay in order to get the shares), and then sold them on the open market for more, you helped keep that fat cat in cash, sort of paying his salary. You might consider that helping the company, eh?

Answer 4

Supply and demand drives the market price of the stock up and down. There's always a seller and a buyer if the price is right. The value of the stock goes up (or down) based on expectations for the future performance of the company.

Answer 5

Just like the brokers, specialists and market makers ALWAYS "get their piece of the action", the same is true for the companies.

The purpose of buying and selling stock is to raise money for the company.

Stock prices change because of supply and demand. AND because traders calculate whether or not a stock's price will rise - or fall.

Thanks for asking your Q! I enjoyed answering it!

VTY,
Ron Berue
Yes, that is my real last name!

Answer 6

No, after the preliminary public offering of shares of inventory (which does no longer usher in any earnings via the way -- it brings in invested capital, and that isn't revenues or earnings), inventory determining to purchase and advertising interior the secondary marketplace does not carry money to the corporation. yet a corporation in many cases advantages in a roundabout way from having an energetic public marketplace for its inventory, which includes being waiting to partly compensate executives with inventory recommendations as a exchange of money earnings. there have been distinctive theories as to why a inventory has cost or positive aspects cost, and in actuality they get way too over excited in esoteric concept -- in actuality it rather is often an hassle-free case of supply and insist. people prefer to possess the inventory and are keen to pay a value for it. The *motives* they prefer to purchase the inventory are in many cases a million) they think of the inventory will bypass up in cost and so that they are going to be waiting to sell at a earnings interior the destiny, or purely count form their better stability, or 2) they prefer to get carry of the dividends the inventory will pay. This totally explains why a inventory has cost contained in terms of roughly ninety 9% of investors.