iarwain wrote:
- quote -

simple answer: unhappy stockholders = no stock holders (because nobody wants the
stock) = worthless stock (value is what someone is willing to pay) = worthless
company

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Stock price does not affect sales, but sales affect stock price. So if company
has no sales.... (read response to first para).



--
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iarwain wrote:
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Here's a nice explanation of stock investing.
http://photos1.blogger.com/hello/101.../dogbert.0.jpg

Anoop

A couple of more reasons to keep the stock price high and to make
stockholders happy are :

1. After the IPO companies will raise capital by issuing more stock. The
higher the price, the less dilutive the offering will be to meet capital
requirements.

2. If you don't make the stockholders happy then they get rid of you.
Chuck Prince at Citigroup is currently under the gun. Stockholders are
starting to become impatient with the lagging stock and they are putting him
under the microscope.

704set


"iarwain" <iarwain_8[at]hotmail.com> wrote in message
news:1154099244.072925.146910[at]m73g2000cwd.googlegroups.com...
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This question is excellent. Anyone thinking about investing
in stocks should ask it.

But for the acquisition of capital to build corporations
that sell products and services in demand, ours would be a
very primitive, physically unhealthy, low life expectancy
society. Fact is the drive to sell results in the
development of new technologies that, for the most part,
make life more bearable.

Corporate leaders and a sub-population of consumers are
aware that development--and hence a better life--will be
stymied without more capital. Furthermore, there is a
synergistic relationship between consumers, stock investors,
and corporate leaders. Without one faction, we could not
have the others. The bond among these groups is so strong
that it should give a potential stock investor some hope
that judiciously selecting stocks and/or mutual funds, as a
hedge against inflation, for one thing, is prudent.

IPO apparently make sense to you. But what does it mean some
say fifty years down the road of a corporation's history,
when someone buys shares, ostensibly holding only a piece of
paper that says s/he owns a tiny fraction of XYZ
corporation?

For one thing that paper represents a promise with
significant legal implications that the likes of Caterpillar
(large equipment manufacturer), Campbell's (a soup company),
BellSouth (communications company), etc. will not just dry
up and blow away. And who can imagine that they will? Given
all the equipment owned, their labor talent, their sales
networks, etc. plus a society that craves more and more, the
only chance that it will all just dry up is a nuclear
holocaust. And after that, it will rebound. Quickly.

Company "ownership" via stocks may seem only virtual,
because the fraction of ownership most small time,
individual investors have is extremely tiny. Yet but for
millions of people willing to own shares of a company,
there would be no company. Stock ownership is very real
ownership of a company. It's vital to a developing
civilization.

In theory, you are correct that companies need not care what
stock prices do. A solid company will indeed demonstrate
disregard for stock prices, since a good or steadily
improving product will ensure greater earnings which in turn
will ensure greater value to investors, forcing stock prices
up but, generally, in some proportion to earnings.

But as you seem to be aware, some companies do worry about
stock prices. Enron, as I'm sure you are aware, is a great
example of this. Need anyone say more? A solid company will
only care about shareholders' concerns over stock prices
only insofar as it reflects the shareholders' concern over
company earnings. Rational, civilized shareholders will care
only about earnings, not stock price.

iarwain wrote:
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Actually, stocks represent ownership in a very real way. But to you
and me, the amount of ownership is usually insignificant. Owning 1
billionth of GM doesn't make you a powerful guy. But there are people
out there who do own significant portions of corporations.

Continuing with GM, take Kirk Krikorian as an example. He owns 10% of
GM. That puts him in a position to seriously influence the board of
directors. So it's in the board's best interest to keep him happy by
keeping the stock price high. And in keeping him happy, they keep all
the stockholders happy.

There are also mutual fund companies that own non-trivial fractions of
corporations. Southeastern Asset Management, for example, holds about
7% of GM's stock. In some way, that stock belongs to the people who
invest in their funds. But mutual fund investers often (perhaps
always?) cede their voting rights to the mutual fund company. So that
makes mutual fund companies big players in corporations.

- quote -

Because the corporation is 100% owned by the shareholders. When
corporate officers lose sight of that fact, they tend to get in to
ethical trouble. But corporate officers are usually major
shareholders, themselves, so their priorities often line up with those
of minor shareholders.

--Bill

On Fri, 28 Jul 2006 10:56:37 -0500, Douglas Johnson <johnson[at]classtech.NOTPARTOFADDRESS.com> wrote:
- quote -

Fair enough.

i

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Ignoramus5429 <ignoramus5429[at]NOSPAM.5429.invalid> wrote:
poses aren't they just pieces of paper?
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Not quite. Shareholders do not elect corporate officers. Shareholders elect
members to the board of directors, who appoint corporate officers.

Another reason companies care about share price is that the compensation of
corporate officers is often tied to the share price through bonuses or stock
options.

How well this all works is another issue...


-- Doug

On Fri, 28 Jul 2006 10:07:45 -0500, iarwain <iarwain_8[at]hotmail.com> wrote:
- quote -

Stocks represent two rights

1) The right to receive a fraction of dividends or liquidation proceeds
2) The right to vote for corporate officers

They are valuable because companies pay dividends (or hope to pay
dividends) and shareholders value that. Since shareholders vote for
corporate officers, they can, in theory, elect officers interested in
making money for shareholders.


- quote -

Because of item 2)

i

This is a pretty silly question, I suppose, but what good are stocks?
I know they supposedly represent ownership in some not-quite real way,
and that under the right conditions they can be used in a hostile
takeover, but for a lot of purposes aren't they just pieces of paper?

Once the initial stock offerings have been made, why do businesses care
what the stock prices do? It's hard to see how the stock price
directly affects sales. Why are businesses interested in keeping their
shareholders happy?