Episode 762: The DC Today - Monday, December 18, 2023

Today's Post - https://bahnsen.co/3NuO33W

When one buys stock in the secondary market they are buying from Mr. Jones and Mrs. Smith, and the money is not getting to the company – that is correct. But there is a very important thing being missed when one concludes that therefore no money is being productively deployed. Namely, the existence of a secondary market is why a public market can raise money to begin with for primary productive purposes. When investors buy equity in a company that does go to the company for growth capital, productive use, etc., they do so with the knowledge, intent, and awareness that the money is going into a liquid, secondary market. That reality impacts the attraction of capital and it impacts the valuation of capital. Take away the ability for Mr. Smith to sell to Mrs. Jones, and you take away the marketplace for BIG INVESTOR to invest directly in BIG COMPANY.

Supplementally, many times companies are doing secondary offerings in the public market where money is coming straight to the company. And finally, dividends are paid to investors who often do directly productive things with them. Where do these dividends come from? The productive profit-making activities of the underling company. Rinse and repeat.

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com