What is the incentive for people to buy stock if they can just print more?

Discussion in 'Trading' started by noob_trad3r, Jan 11, 2013.

  1. It seems with Stock companies can just issue secondary offerings anytime they want which dilute existing shareholders.

    Why would anyone buy single issues? especially IPOs? If they can print stock at will like printing US dollars?
  2. 1. As long as the value of the stock rises - even if it rises by less than it would have otherwise - you'll make money.

    2. If the capital raised by the secondary offering is used to improve the company's earnings etc., your diluted stock may be worth more in the future than it would have been without the secondary offering.
  3. Daring


    If stocks are such a scam you welcome to short :)
  4. piezoe


    This is often not good, as it can signal financial difficulties. But it isn't always a bad thing, depending on how the money raised is used. Usually, however, dilution is accompanied by a decrease in share value, at least initially.

    The opposite of dilution occurs when a company uses cash to buy back shares, this is a good thing in general, and will be accompanied, eventually, by a rise in share price. An example would be Diageo (DEO). This signals that a company is in sound financial condition. Beware however that some companies buy back shares using borrowed money. This is not good!

    The stock market always distorts prices, they will either be too low or too high relative to their true value virtually all the time. True value is nearly impossible for anyone other than insiders to reliably know.

    Furthermore, there is endless media hype of stocks which is very effective in pushing stocks up and down. So called analysts recommendations coming from investment banks, or any entity that also trades in the market, are other sources of unreliable hype that is effective in pushing prices around. Still another source of hype are company officers themselves. When things are going well they often exaggerate to the upside, and when the company is in deep trouble they almost invariably downplay the dangers to their share holders, stopping just short, usually, of criminal lying.

    As a trader or investor your job is to be aware of the less savory aspects of Wall Street. Recognize that Wall Street consists of fast talking criminals in expensive clothes, and learn to navigate around the dangers. There is always risk, and risk always rises with potential reward. If it doesn't, you are looking at something illegal.
  5. What's the incentive for people to buy wheat if the producers can just grow more? :confused: :cool:

    What about US bonds or federal reserve notes?

    How about gold, or some class 5 rock?

    Dividends/growth are a big reason why people like stocks.

    Eating food is a big reason people buy wheat :)

    Not being able to print gold is a big reason people buy gold or class 5 rock during hyperinflation lol
  6. like they told me, the most important quality is truth, "SO GET ON THAT PHONE AND START SELLING THE TRUTH!"