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Post by Broozer on Jul 23, 2023 0:07:29 GMT
I never really thought about this before: Say you buy $10k worth of one stock, so you give the broker a check. What does he do with the money? Does the company that you bought somehow end up with it?
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Post by yogibearbull on Jul 23, 2023 0:20:41 GMT
Beyond the IPOs and secondary offerings, the companies are out of the picture. All trading is among the investors, and the exchanges just facilitate that trading. So, say, Broozer buys $10K of xyz, and the sell order for xyz from YBB is matched at NYSE, then $10K goes from Broozer to YBB. The beauty of this exchange trading is that the buyer and seller don't know or meet each other and each is dealing with only the broker/exchange/clearing firm. Of course, sometimes, Broozer 's broker may fill his order from its inventory at a better price (that is the law). |
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Post by Broozer on Jul 23, 2023 1:02:26 GMT
Okay thanks Yogi, I guess I knew that normally for every buyer there must be a seller. I didn't ask the right question actually.
To be somewhat political and more direct: In the past year or so we hear of all these woke companies being boycotted, and their value plunging by billions or tens of billions. If you hold some of that stock, of course your portfolio value went down.
But what about the company itself? Does losing say $10B of stock value affect their operations, financing, etc? Random people I see online (not here) are cheering that so-and-so woke company lost $X-billion in stock value, but does it affect the company directly?
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comlb
Lieutenant
Posts: 68
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Post by comlb on Jul 23, 2023 1:47:12 GMT
like yogibearbull said the company does not receive the money so it does not directly effect them. However some nuance - 1) companies psychologically like their price to be high 2) many execs can be paid in stock so it could effect them. 3) certain companies like reits do issue stock so it would hurt those types of companies 4) perversely, driving the stock price down can actually help companies that do large buybacks |
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Post by steelpony10 on Jul 23, 2023 1:47:44 GMT
Broozer , Any loss in sales takes away from it’s attraction as an investment. This may lead to added spending to increase sales or win back customers.. So added expenses for one thing. The ones I know about some major sports, Disney, the parent of Budweiser and Target had no reason in my opinion to push social issues and not expect a backlash. Maybe a management misstep to quell liberal criticism. So stuck in the middle of apparently a tribal fight. A no win situation.
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Post by Broozer on Jul 23, 2023 2:54:28 GMT
Broozer , Any loss in sales takes away from it’s attraction as an investment. This may lead to added spending to increase sales or win back customers.. So added expenses for one thing. The ones I know about some major sports, Disney, the parent of Budweiser and Target had no reason in my opinion to push social issues and not expect a backlash. Maybe a management misstep to quell liberal criticism. So stuck in the middle of apparently a tribal fight. A no win situation. I agree, it was really stupid of them, but not sure how political we can be here so I didn't ask that directly.
They deserve what they got, but wasn't sure how it actually affected them monetarily.
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Post by retiredat48 on Jul 23, 2023 3:45:20 GMT
Broozer,, who posted "They deserve what they got, but wasn't sure how it actually affected them monetarily." Budweiser has had a huge DECREASE in sales of Bud Light, etc. This affects them monetarily...same as it affects Bud locally owned distributors/truckdrivers/etc. Less business. R48
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Post by steelpony10 on Jul 23, 2023 10:41:51 GMT
The administrator doesn’t want anyone to get too political anywhere. If you want ask those types of questions in the “Off Topic” section. That was an appropriate question to ask. I tried to dance around and not get political. That seems to be the standard. As retiredat48 , mentioned not only shareholders but employees down the line were really hurt. I believe you’re correct stay away from politics and religion when dealing with people. Leave that up to the two tribes currently until it runs it’s course.
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Post by chang on Jul 23, 2023 10:58:46 GMT
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Post by Capital on Jul 23, 2023 16:49:32 GMT
Back to the original question as amended. "Does losing say $10B of stock value affect their operations, financing, etc?"
While the effects of any third-party action may not affect the operations of the company at the time, the market is making an estimate, reflected as a reduced or increased valuation, of the future changes to operations caused by the third-party actions.
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Post by bizman on Jul 23, 2023 18:42:39 GMT
The following doesn't really apply to the idea of potential negative consequences of "wokeness" or other factors, but obviously a dramatic decrease in equity values matters to a company, especially if it is persistent and not simply a matter of a temporary market downdraft.
Particularly so if you are talking about a business like a regulated utility or a REIT that routinely issues debt and equity to fund growth projects, and doesn't fund growth out of organic cash flow. Which is why regulators need to be cognizant of helping regulated utilities manage their financial profile and credit ratings, or else the system can break down and dramatically increase the costs to consumers, and/or make new projects uneconomic.
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Post by yogibearbull on Jul 23, 2023 19:14:24 GMT
While trading in its stock doesn't directly affect a company, the stock price level does have an impact.
Company executives and employees get stock-based compensation/bonus (grants of options or stock) that may become worthless if the stock falls too much. Many top executives get extra stock-based compensation for meeting/beating EPS and/or revenue goals. This becomes difficult if there are mass protests organized against company products.
Eventually, lot of the stock value is related to going-concern aspects of the business. The liquidation value without ongoing business may be only 15-35% of the stock value. So, when a stock falls dramatically, say by 50-75%, there are suddenly worries about potential bankruptcy. Then the credit rating tanks, company cannot raise or roll debt, its bonds start trading at deep discount from the par, its suppliers stop deliveries or demand cash upfront. It becomes a death spiral.
This is beyond the OP question that was on how the stock trading affects the company - it doesn't.
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Post by Broozer on Jul 23, 2023 19:46:03 GMT
While trading in its stock doesn't directly affect a company, the stock price level does have an impact. Company executives and employees get stock-based compensation/bonus (grants of options or stock) that may become worthless if the stock falls too much. Many top executives get extra stock-based compensation for meeting/beating EPS and/or revenue goals. This becomes difficult if there are mass protests organized against company products. Eventually, lot of the stock value is related to going-concern aspects of the business. The liquidation value without ongoing business may be only 15-35% of the stock value. So, when a stock falls dramatically, say by 50-75%, there are suddenly worries about potential bankruptcy. Then the credit rating tanks, company cannot raise or roll debt, its bonds start trading at deep discount from the par, its suppliers stop deliveries or demand cash upfront. It becomes a death spiral.This is beyond the OP question that was on how the stock trading affects the company - it doesn't. I guess we go back to the beginning: If for whatever reason a stock starts to tank and continues for some time, then there would be more sellers than buyers, driving the price down. That could lead to what you describe in your bolded paragraph -- a death spiral.
Thanks to all for the responses.  |
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Post by steadyeddy on Jul 24, 2023 0:23:34 GMT
Beyond the IPOs and secondary offerings, the companies are out of the picture. All trading is among the investors, and the exchanges just facilitate that trading. So, say, Broozer buys $10K of xyz, and the sell order for xyz from YBB is matched at NYSE, then $10K goes from Broozer to YBB. The beauty of this exchange trading is that the buyer and seller don't know or meet each other and each is dealing with only the broker/exchange/clearing firm. Of course, sometimes, Broozer 's broker may fill his order from its inventory at a better price (that is the law). Doesn't each stock also have one or more market makers? And I believe they have the obligation to buy/sell shares to keep liquidity. |
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Post by johntaylor on Jul 24, 2023 13:49:53 GMT
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Post by Broozer on Jul 24, 2023 21:45:40 GMT
Yes. I've looked at "publicsq", but haven't done any more than that. |
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Post by Chahta on Jul 25, 2023 0:24:45 GMT
Some compannies own their own stock. In this instance it does affect the company because their "portfolio" loses some value. But I doubt it is not enough of a loss to affect the company financially. They are in the business of generating more revenue.
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Post by yogibearbull on Jul 25, 2023 0:59:05 GMT
steadyeddy , the OP question is like an onion - after one layer, there is another, and another. So, yes, there are multiple market-makers now and they are "expected" (but not "bound") to provide liquidity when there isn't the other side to match the trade. But they do this at a "price". So, if there is persistent retail selling, without many retail buyers to match, the market-maker(s) can quickly lower prices on successive small lot trades. However, during market disruptions, most market-makers just withdraw - they are not "bound" to provide liquidity as the old Specialists used to do. That is why flash-crashes (mini or maxi) can happen now. Chahta , treatment of the own stock held by a company is different. So, after buybacks, the stock is either cancelled, or held temporarily in the company Treasury for employee benefit plans or any upcoming M&A. As for company stock held in employees benefit plans, rules now don't allow much of that. There are also strict rules on when companies can buyback their own stocks. Unfortunately, many companies bought back their stock in good times when the prices may have been too high, but that is sunk money - all gone, the money that could have been used for capex or regular dividends or special dividends.
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Post by anitya on Jul 25, 2023 20:31:05 GMT
Some compannies own their own stock. In this instance it does affect the company because their "portfolio" loses some value. But I doubt it is not enough of a loss to affect the company financially. They are in the business of generating more revenue. Its own stock held by a company is not considered a portfolio investment, requiring revaluations up or down as the market price of the stock changes. Stock held as Treasury stock is more for administrative convenience. |
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