How does buying 100 shares of IBM on the stock exchange and holding it for a yea

1. 89

   My Esotericposted 13 years ago

   How does buying 100 shares of IBM on the stock exchange and holding it for a year create jobs?
   
   When I but stock on the stock exchange, I am buying it from somebody else that owns it, not from IBM, so IBM does not see a dime of my money.  If I hold it for more than a year and then sell it for a profit, I only pay 15% on the capital gains.  How does my tax advantage for making ths type of investment help create jobs or growth for IBM itself as many on the Right claim it does?

   replyreport
2. 82

   Doc Snowposted 13 years ago

   I'm not the best guy in the world to answer this question; I've never studied finance or business.
   
   But--if you, or somebody like you, wasn't available to buy that stock, presumably he would have had to sell to IBM, and the money that they would have paid him would have become unavailable for IBM to invest.  That's why stocks pay dividends, right?--it's compensation to the stockholder for the loss of the use of their money, paid by the company--which (one hopes) found a productive use for it.  Maybe they even hired somebody and created a job.

   replyreport
3. 67

   Brupieposted 13 years ago

   Buying and selling stocks of the secondary markets, that is, existing stocks for companies doesn't help that company directly.  There is some advantage in keeping a demand for that capital though. 
   
   Most companies don't have all of the shares on the market.  The company-owned shares, known as treasury shares, are a sort of reserve capital.  Many of the decisions top management make are tied to the price of their shares.  If there is little demand for their shares, e.g. a low stock price, the company may choose to take existing funds and invest them in buying back more to assure existing shareholders that the company is worth owning.  If the stock price is high, however, the company may choose to release some treasury shares for things such as expansion, research or hiring. 
   
   I generally agree that holding shares isn't a big job creator, but it isn't cut and dried.

   replyreport