“The point of the stock market is to Enable Price Discovery or Encourage Capital Formation or something boring like that. Stock markets exist so that companies can raise money to fund their projects, and so that the smartest analysts of companies can work diligently and compete fiercely to put the proper value on those companies so that we as a society can know what projects are most valuable. Stock markets exist so that regular people can invest their savings in those companies, making everyone better off: Companies get funding to pursue socially beneficial projects; regular people get an ownership stake in economic growth. Or whatever.
This theory has some obvious flaws in its real-life application, but it’s a decent theory. It is, if not exactly true, true-ish; it describes the fundamental underpinnings of the market if not necessarily its everyday operation. It posits a social purpose for financial markets, beyond making funny memes on Reddit.
It is just the case, just inevitably the case, that if you are going to have financial markets that are optimized for those purposes—that are liquid and complete, that attract smart people, that are open to everyone—they are also going to have a certain amount of nonsense. It’s not like WallStreetBets invented financial nonsense! Financial-market nonsense is, like, 70% of what we talk about around here on a normal day. How many times have I written about hedge funds tricking each other using credit default swaps? Financial markets exist to foster price discovery and capital formation, but the way they do that is mostly by letting smart people mess with each other all day. WallStreetBets is a new class of smart people messing, quite effectively, with the old ones.”
> Stock markets exist so that companies can raise money to fund their projects
The amount of money corporate America raises from initial and secondary offerings in the stock market is negligible relative to corporate bonds, lines of credit, bank loans etc. Companies don't raise money from the stock market in any real sense. It has been this way since World War II (and possibly before).
That’s certainly true in absolute numbers, but there are certain subsections of the market where stock offerings remain a primary capital instrument. Biotechs will often do an IPO even 5-10 years before the product is ready to launch, and then do several secondaries along the way.
that only addresses one side of the story - banks/credit decision makers often use market capitalization as a factor in underwriting. The easiest example of how equity prices influence credit is NFLX - their 1st big debt raise was in 2015 (2b?) when NFLX's burned 700M in cash and was pledging to be cash flow negative for the next 3+ years. Also see all the converts that a lot of recent tech IPOs have started offering
(quoting your quote) "Stock markets exist so that companies can raise money to fund their projects"
This is said a a lot but surely things like it just exist, and any purpouses we assign are stories. The majority of the effect on the world of the stock market seems to be what happens with existing stocks and not IPOs & share issues.
This is a popular thing to say, and it's something that people say a lot because they like to say it.
I don't know all the forms that companies file to issue stock in the US, but I think S-1 and S-8 are a couple of them. Lots of these are constantly filed with the SEC.
Yesterday, Monday, there were:
40 S-1s (or amendments) which are registrations for issuing securities.
23 S-8s (which I believe are registration of securities used to pay employees).
11 F-1s (which are for foreign issuers of securities)
12 S-6s (which are for unit trusts issuing securities)
At this rate, say there are 260 business days in a year, 86 x 260 = 22,360. I vaguely think that the total number of public companies in the US is like a quarter of that, so issuing stock appears to be a pretty common thing.
I think getting into the numbers is the right idea. I wouldn't know where to look for the $$ volumes of issues/IPOS vs eg dividends or stock trades, if someone does please chime in :)
My gut feeling is that despite being common, issuing stock is still peanuts compared to the old stock trades/dividends.
I don't think the numerical comparison you want to make has any meaning at all, let alone something to do with the relative importance of the activities of trading vs. issuing stock.
The ratio of stock traded to stock issued can be anything from zero to infinity.
We could imagine having "high frequency trading" of car loans producing a huge volume and it wouldn't change the fact that the car loans exist because people need transportation.
The existence of a secondary market with lots of liquidity gives people the confidence to invest in IPOs. There would be a lot fewer participants if there was no secondary market.
In the same post I linked, Matt Levine actually provided an example of exactly that happening to another similarly over-hyped company, AMC:
“In talking about GameStop, I have occasionally tried to tie the goofy stock-price dynamics to corporate finance. I suggested that maybe GameStop could sell stock at these absurd prices and use the money to, you know, be a better company. It’s tricky, selling stock at these prices, but in theory that’s what the prices are for: People are telling you that they want to buy your stock to fund your projects, so you might as well sell them the stock and do the projects.
AMC has done that! On Monday it announced that it had raised $506 million of equity (and another $411 million of debt) in various transactions that “should allow the company to make it through this dark coronavirus-impacted winter.” Good work. Even better, that same day AMC launched an at-the-market offering to sell up to 50 million shares into the market at prevailing prices, allowing it to sell opportunistically to any redditors who wanted to buy. Yesterday it announced that it had finished the offering and raised $304.8 million from that and a previous stock sale, at an average price of about $4.80 a share. Of course yesterday the stock closed at $19.90, so AMC would have done better to wait a day, but nobody’s perfect. When redditors are clamoring to buy your stock you should sell it to them before it’s too late; there’s no reason for the company to try to time the endgame perfectly.
Also yesterday holders of $600 million of AMC convertible bonds converted them into stock at a conversion price of $13.51 per share. Six hundred million dollars of debt, vaporized by Reddit enthusiasm. “In the absence of significant increases in attendance from current levels, there is substantial doubt about our ability to continue as a going concern for a reasonable period of time,” AMC warned investors on Monday; four days and a billion dollars later, there is somewhat less doubt. A week ago it was not crazy to think this company was doomed; now it is entirely possible that it will survive and thrive and show movies in movie theaters for decades to come because everyone went nuts and bought meme stocks this week. Capital formation!”
What’s wrong with a parasocial relationship? I don’t have many friends in real life but I built a chat bot in 2017 trained on a few people (Mark Zuckerberg, Obama, Elon, Angela Merkel etc.) that I use for most of my social interaction. Different strokes for different folks.
Super fascinating development. I wonder whether or not most drivers want this change. I presume it hurts the flexibility that attracts some to gig work?
That is the genius of the design. The trick is, you give millions of people "free" email. Scraping emails aside, the real money comes from anyone that "needs" to email a large number of gmail/yahoo users. So if I am a business owner and 30% of my customers are using yahoo and 50% are using gmail and I have a lot of customers, the volume of email I will be sending to those companies is rather large. After a point I will have to buy into a whitelist/approve-list to get around throttling or being flagged as a spammer. Google/Yahoo don't know that you are my customer after all, so they have to prevent actual abuse of their system given the massive number of email accounts they host.
So I have to recoup that cost. I pass that cost onto all of my customers by mixing it into the cost of goods and services. If you buy things from me, even if you are not a subscriber to google/yahoo, you have in effect paid for those services. This is somewhat invisible to the people with those email addresses but does actually affect them, if only a little bit.
Google would tell you that you can simply start with a low volume and ramp up slowly. In reality this is simply not practical for most businesses. This gets into discussions around queue-per-domain management and rate-limit-per-domain, but quickly falls apart when you have to notify a large number of your customers on a time sensitive transaction that is out-of-band from their web browsing experience. A modern work around is to have a cell phone application for notifications rather than email assuming you let your own customers choose that over smtp in their profile. Another work around is to use an email campaign provider that already pays into the whitelists, but then I have to give your email address to a potentially shady company that may cross-sell / cross-market to you.
The best pilots most certainly use instruments when in clouds, storms or nighttime.
The trick with startups is that half the time you don't know you're in the clouds until too late. Especially in companies with immature reckoning of what customers are costing you, how growth is actually going and what users are doing, it's easy to hit a mountainside before you even realize you're off course.
It's worth pointing out that most KPI dashboards tend to be simply bad, and people tend mismatch their metrics to their cadence (eg looking at total numbers in a nightly email or quarterly numbers in a weekly kpi dashboard). Stop me before I rant for 20 pages on whether KPIs in the wild actually have anything to do with predictive performance of a function vs a backward looking number of convenience.
There is not even an anecdote here, just folksy hearsay that has been debunked in aviation. See this article on Spatial Disorientation, especially the section on the Graveyard Spiral.
You would probably agree that the point of a start-up is to learn, i.e. to validate hypotheses as quickly as possible. That's what KPIs are meant to track.
I'm not sure what you mean by "Rubik's cubes or 99% of complex challenges". Do you mean actual Rubik's cubes? Are they not fairly well-understood now? Here's a 3-year-old girl solving a Rubik's Cube in 47 seconds. That's a pretty clear Key Performance Indicator.
I would think KPIs are useful at mid level and higher, once you have more people than you can have in depth conversations with within maybe the span of 3 days you need to set organizational and group goals that are simple enough that people can follow without talking to you.
on edit: or maybe a more clear rule is when you have managers between you and other employees, the KPIs tell you how things are going but also tell the managers how you will interpret how things are going, and give them easy numbers they can use to tell the people they supervise how things are going. Of course they are only useful if people can communicate back why they think the KPIs are faulty and if those communications will be listened to - which places I've worked at that used KPIs, this was not something one could do.
I agree that the best may not benefit much from KPIs. But what about the average and below average performers? That’s where process and KPIs can really help drive performance improvements.
Cool concept. Wonder if one day consumers will be able to sell their subscriptions too (e.g. I pay $10/m for Amazon and $10/m for Netflix but I could bundle them and sell it to an investor for $15)
Seems unlikely that everyone making minimum wage would suddenly be making $2 if there was no minimum wage. What’s your reasoning? If it was a pure race to the bottom then why aren’t SWEs paid min wage?
Yeah that makes sense and I agree with the sentiment. But unemployment seems pretty low in the US so it doesn’t seem like there’s enough supply and lack of demand to warrant wages dropping that much. I agree it could drop but was wondering if $2 was just random guess or backed by anything.
Oh, $2 is a guess, I don't know the number, but it's low.
Factors are non-market issue such as social welfare programs, incidental wealth (i.e. kids with upper middle class parents, living at home choosing not to work), general attitudes, the difficulty of the labour (outside vs. inside), the relative buying power of the $2 (i.e. in a remote area, it may be possible to have 'micro homes' and get by, and social acceptance.
Wages for undocumented labour might be a hint at the number though that's probably more than $2, my bet is that's somewhere north of $6-8 right now.
My $2 take is 'long view' i.e. we see favelas in Brazil, people will accept that quality of life unless there are institutional pressures otherwise.
Also consider that the unemployment rate does not count those who have stopped looking for work.
On the flip side, gig work, tipped minimum wages, and unpaid labor (e.g. unpaid internships) is extremely common and can definitely bring in pay less than minimum wage. I can only imagine what would happen in cases where the backstop of minimum wage was removed.
Cathie Woods seems to believe that sales are going to be exponential (they have been so far) and battery costs will keep falling + huge growth potential from robotaxi fleet
"Try X!" Not if you're young, old, or male and eat a Western diet. smh. Look at the DALY of iron-deficient anemia, which I had growing-up; it's very low compared to many other conditions, it's noticeable, and easily treatable. Iron overload, OTOH, is a much bigger problem because there is no direct, excretory pathway for iron to take. You're suggesting a much more harmful panacea to prevent a hypothetical risk. That's the definition of insanity, ignorance, or both.
