Does society need the stock market ?

[Swirlythingy2025]

Or is there a better model for companies etc to raise funds ?

How do you suggest they raise funds? The stock market allows everyone to invest a tiny amount. I put £50pm into a s&s isa. I can't imagine they would raise enough with any other format.

been watching the show billions, and it seems omg, plus there must be better methods available

yes, shared ownership of businesses is good for society.

What do you envisage by “better?” There are already different types of shareholding. Private companies limited by shares are often owned by private equity or venture capitalist investment. Private companies can also be entirely supported by a single shareholding founder and owner - as many small businesses are. The stock market is simply an alternative means of investment and growing a company, which makes the stock more liquid, as well as testing market confidence.

It's an interesting question. Duty to shareholders seems to override duty to anything else, including the planet (looking at you, oil and gas companies 🙄).

I have heard it said recently that as individuals, we have no control over anything any more, and part of the worldwide crisis in faith in politicians stems from the fact that there's only so much even global leaders can do to change things- "the markets" rule supreme. As even Donald Trump seems to have discovered 😆.

How to change this state of affairs though- now that's the question 🤔

Companies need the stock market, but survived for many years without the participation of small investors, it was mainly the province of the rich.

And now of course that is where a lot of pension funds keep our money so that it grows over time. Not sure where that would go without the stock market.

Companies dont raise money on the stock market and havnt done so for a long time.

Where are peoples pensions supposed to go without it?

Would we have the large businesses/companies that help us on our own daily lives without them?

You'd have to work very hard to enforce a ban on people investing in each other's businesses. And if you didn't ban that then you'd have stock markets in all but name.

What’s the argument in favour of not having it?

Yes there are better models for some companies to raise funds - Private Equity mainly filling that gap.

I think listing is a less popular option than in the past - it’s often just the final move a company can make once its raised from the very big Private Equity funds (and giving them room to exit).

True, unless they issue more shares to sell.

The stock market is basically a huge cassino, where people 'invest' their stake, hoping the value will rise. The whole thing is a house of cards.

Not really. It represents ownership of a stake in productive businesses. Yes it goes up and down but that’s not a house of cards.

As a general rule, people who invest in the stock market (and hold a sensible diversified low cost portfolio for the long run etc) end up much richer than people who don’t.

You also need to look at it from the other side, i.e. are there better ways for individuals to invest in companies.

There are individual stocks and shares, exchange traded funds, investments trusts…… plus the various tax wrappers in which they can be held - pensions, ISAs, etc.

Most people find the current system complex enough and many struggle to understand the various investment options - and now you are proposing to add another one? What are you actually hoping to achieve?

Interesting question. I don’t know how you’d get the funds without some sort of sharing. I prefer the cooperative model of ownership, which is -sort of - akin to crowdsharing and gives more methods of enabling lots more people to be involved than the current stock market. The latter is too remote and esoteric for the majority of people I think, even with the recent apps.

There is a particular issue in Britain with the domination of the London market and financial services over the entire country.

When you buy a share in a listed company you are buying the right to a share in its future profits through a dividend. You also get the up/down side of the change in the valuation of the company. You also get a say in the company’s management and policies through its AGM. Businesses benefit from this because it is relatively fair and transparent.

Without listed shares, to grow a business you would have borrow money from the bank or issue bonds, or rely on the patronage of wealthy private investors sought through professional or class networks. This can be expensive, unfair, and is less likely to allocate the biggest rewards to the most successful businesses. It would also be less socially useful for pensions, etc.

Overall, whilst there may be many downsides, the system almost certainly works better than the alternatives.

but why not use the traditional banks to raise capital ?

I don't see the point of making a Mumsnet post about this. Most of the questions can be answered by googling. I've also seen Billions, Chuck wants the market to be fairly regulated and for there to not be insider trading.

There's a limit as to how much a bank is willing to lend, stocks represent a direct ownership in the company. Stocks pay dividends.

I think if you really want answers and greater understanding, sign up for an intro to investment teach-in. If you want to raise £150K to start up your own small business, a mainstream lender is probably the most efficient and accessible route to that. If you want to raise half a billion dollars to carry out complex transactions or build out your operations in multiple jurisdictions, it isn’t.

Looking forward to finding out why 😆

This is utter nonsense. Issuing new shares on a stock exchange is one of the ways companies raise money. Alternative ways are loans, issuing debt, venture capital investments. You clearly know nothing about financial markets.

but then it does not help when companies use methods to manipulate those shares etc

Which is why financial markets are heavily heavily regulated

What do you think your pension fund is invested in?

what kind of returns would you expect if your pension contributions were only invested in bank accounts and bonds?