True or False - The Stock Market is a Scam

[1-Old-Man]

15. Very nice description of how it works for people who pay attention, but one slight correction

Actually this is a very big correction, but its not one that many folks give a great deal of attention. The stock market, as we typically know it, doesn't actually act as vehicle by which legitimate companies raise money for their needs. The stock market as we see it is actually a secondary market. Think of it as a used car lot. When a company needs to raise money and choses to sell shares to do so it does not initially sell those shares 'at the market' but instead sells them through a broker. The broker then resells the shares to investors (be they big or small) and those investors use the market to resell them and so on .... But the point is that if a share is for sale on one of the large exchanges, the NYSE for instance, the money it brings does not go to the company but to the previous owner. To go back to the used car analogy, when Chrysler builds a car it sells it to the public via its dealership network and that is how they make their money, but when the car is resold it goes to the used car market where it is private individuals who do the buying and selling. The stock market exchanges are just like the used car market, but considerably more regulated.

Another thing. While it true that from time to time an Enron shows up on a major exchange, a company who's business is illigitimate in that it is a fraud, they are very rare. More common are the McDonald's and GMs, and Atlanta Screen Door Manufacturing, on the market. They are honest to god companies doing honest to god work every day and hopefully earning profits. If you are one of the millions of partial owners of one or more of those firms and they grow then so does the value of your investment in shares of their stock.