>> The purpose of stock markets is to find the "correct" price for a stock.
Is it? Who's purpose?
The main purpose of an IPO is (was?) financing. IE, raising money for the company operations... like a bank loan, VC investment, etc. In practice, many of today's IPOs are companies that don't need to raise money (anymore). For those companies, their main purpose when doing an IPO is usually liquidity. IE, letting founders, investors and such cash their shares... or continue owning them with the added benefit of market prices to validate the value of their wealth.
Your argument is quite mainstream, but I can't see how anyone would make it except to justify short selling. It seems to me there's a lot of "you sure about that?" in the whole thing.
Are you sure "finding the correct price" is an actual need? Who needs this, and why? Are you sure short selling makes for better prices?
Liquidity is a similar argument made in favour of derivative HFT and such. I also think its (probably/usually) quite bogus. Do stock markets even have liquidity problems? Stocks are insanely liquid. That's what they're for.
Investors (as opposed to speculators) and anyone interested in general economic efficiency.
After the IPO, a stock ultimately represents a claim on a future revenue stream, and as such the "proper value" would be the (proportional) NPV of the company's future income. To the extent the market price doesn't reflect this, it represents inefficient allocation of investment resources.
Unlike bonds, an equity's future income is very hard to predict, so providing that pricing information, along with liquidity, is what ostensibly distinguishes Wall Street from a casino.
Personally, I don't care about short selling. I trace the root of the problem to the fact that dividends are taxed much more harshly than capital gains because capital gains don't incur taxes until sale, so they compound better. This incentivizes mature companies to retain earnings and grow through M&A (including of competitors), leading to this glorious present of megaconglomerates and oligopolies we are now living in. My prescription would be to incentivize dividends and discourage retained earnings so that some connection to reality is re-established in the market.
Another of the many problems with megaconglomerates, aside from them being anticompetitive, is that it is much harder to accurately predict the combined future income of 100 aggregated businesses than just one, so their very existence distorts prices all the more.
Is it crazy to think dividends should be a requirement for companies after so many years or face delisting? Along with flipping the taxes of capital gains vs dividends.
I don't think it would be quite as simple as that, but that would be better than nothing, definitely.
Loosely, I think corporations should have a progressive income tax based on net income (defined in such a way as to prevent Hollywood-style games) or maybe market cap, to disincentivize getting huge and to encourage divestment. Dividends, I believe, usually already have a nominally lower tax rate than capital gains, but the fundamental problem is related to compounding. I therefore think the capital gains rate should be much, much higher and the dividends rate probably somewhat lower.
Is it? Who's purpose?
The main purpose of an IPO is (was?) financing. IE, raising money for the company operations... like a bank loan, VC investment, etc. In practice, many of today's IPOs are companies that don't need to raise money (anymore). For those companies, their main purpose when doing an IPO is usually liquidity. IE, letting founders, investors and such cash their shares... or continue owning them with the added benefit of market prices to validate the value of their wealth.
Your argument is quite mainstream, but I can't see how anyone would make it except to justify short selling. It seems to me there's a lot of "you sure about that?" in the whole thing.
Are you sure "finding the correct price" is an actual need? Who needs this, and why? Are you sure short selling makes for better prices?
Liquidity is a similar argument made in favour of derivative HFT and such. I also think its (probably/usually) quite bogus. Do stock markets even have liquidity problems? Stocks are insanely liquid. That's what they're for.