Your Questions About Paper Trading Stocks

Laura asks…

in which circumstances does buying a company’s stock actually benefit that company?

If I buy a company’s stock, the money that I spend does not actually go to the company itself, but to whomever owned that stock last, right?

What if I want to use my power as an investor to actually help companies that I like and I feel good about? What if I want to make my investment help that company directly by giving it an infusion of capital to use in R&D, innovation, etc, rather than just line the pocketbooks of third party investors?

I understand that a company’s IPO is a good time to do this, because the money raised from sales of stocks in an IPO goes directly to the company, right? And when companies sell new stock later on (not an “initial” public offering, but a subsequent public offering (?))?

But is there any other time or other circumstances when my investment directly raises money for that company, or am I stuck just trading symbolic pieces of paper with third party speculators?

John answers:

I think you should not view your participation in the secondary market as lining a third party speculators pocket.

The company benefits in other tangible ways by having a active secondary market:
– The fact that there is a secondary market allowed the company to raise the money with an IPO. In fact, this may have allowed them to issue shares at a premium as opposed to a private placement.
– You may be buying stock from a long term investor (not a 3rd party speculator) who may be exiting the investment due to a fund mandated liquidity event
– Continued participation in the secondary market for a company share will potentially reduce the cost of future capital needs. That is, they will have to issue fewer shares to raise the necessary capital.

So be it the primary market or the secondary market, your investment actual helps the company. If not for a thriving secondary market, you can bet that USA would not have been half as prosperous. Just compare it to any country without a well developed secondary market – see what the costs of raising capital there are?

Michael asks…

how can I purchase stock for my 1 year wedding anniversary?

I would like to get my husband a share of stock from buffalo wild wings for our anniversary. We met there and I though it would be a great idea for our 1 year wedding anniversary, since the gift is paper by tradition.
I called scott trade and they said they dont give a ” paper certificate” wondering if anyone had any advise on how to print/and or make a certificate?
thanks for your help

John answers:

No one really issues paper shares anymore.

Just open the scottrade account and buy the share.

Make a cute handmade stock certificate with Publisher or Photoshop or something like that. You could print your trade execution and copy/paste part of it into your homemade stock certificate. You could even frame it if you like.

I think a stock certificate is a great “paper” gift for a first anniversary, by the way! Way to go!

George asks…

Need advice – should I contact trading standards and failing that, the police?

I’ll try to be as brief as poss abut this

My boyfriends nan bought a TV table from a place called the ‘wHAT’ shop – a place that is supposed to have bargains. The table cost her £70.00. When she got home and took it out of the box, the table was white – not the black one that she had requested. This was during the Easter holiday so the shop wasn’t open to return it etc. They also dont live near the shop where they bought it so they had to wait a few days for a lift (4 days after they bought it but 2 of those days shop was shut for Easter).

So they go back and tell tell the shop that they were given a white one not the black one. They first of all started saying that they had none in stock and it would take 3 weeks to order. Did they want that or their money back. They were shocked when Nan said that she did want the table but cant really wait and will just have the money. They then changed their story and said that they actually just found one but Nan couldn’t take it their and then because she didn’t have the transport so her Son went to pick it up the next day – only to find that they said they sold it!

Nan went back yesterday to which she was fuming that they sold it and they replied that they thought they had but they found it again in the shop (almost laughable huh?!) They said that she couldn’t have it right then and they would deliver it on Saturday. Nan said that because all of the hassle, she would just have the money back

Here comes the trcky bit

The receipt that they were given is a norman bit of paper that has TV table Paid cash. ts signed and dated by the person who sold it to them and he insisted that if they had problems then they were to speak to him. When they asked for him yesterday apparently it was his day off. When they first found out the table was white and not blcak Nan phoned and was kept on the phone for 11 minutes whilst the lady on the phone was calling this man in the shop, then turned around and said he was unavailable!

Nan also gave me a proper WHAT shop receipt for something else she had bought at the same time. I asked her why the TV table receipt was hand written and why they couldn’t have given her the same receipt with the small item she bought and the TV table on it.

Therefore, I believe that the TV table was not rung through the till – so where did that money go? VAT obv wasn’t declared on it…..but if the receipt is ‘fake’, why are they willing to give her a TV table worth £70.00 on Saturday? They said that she either has the TV table delivered or nothing at all! The lady that was speaking to her was swearing at Nan (who bless is so gentle) and then the shop person walked away from Nan with a smug smile on her face.

Do you think they are doing dodgy dealings and making money by selling items cash in hand? Trading standards are not open as I am typing this so cant ask them just yet. I am going to the shop today and am determined to get the TV table. Nan gave the white one back so now she has nothing – yet paid £70.00

John answers:

The advice from the Police is likely to be that this is a civil matter although it is bordering on fraud by false representation due to the issue with the colour of the table. However, this is VERY thin and I doubt it would stick in a Court of law and without knowing the full circumstances, how the thing was packaged, what was written on the box, any signs displayed in the shop at the time etc, it would be difficult to give a fully accurate answer.

Having complained about bad service in shops myself, my best advice would be to stay calm, see what happens with the new table and ask to speak to managers if they are not forthcoming. If all else fails report them to trading standards.

As for the swearing issue, this is an offence under section 5 of the public order act, causing harassment alarm or distress but again I would need to know the full circumstances to give a fully accurate answer.

Good luck in resolving it!

Donna asks…

y do stccks have value/demand if they dont pay a dividend and there is no prospective buyback? why demand them

i understand the synergy of joint ownership and pooling capital to achieve grand endeavors in a shorter time frame. but i want to know the MATERIAL connection between a stock and the enterprise behind it after it is in the public domain. why would anyone buy a piece of paper if the underlying enterprise will not pay dividends and will not buy it back? is stock trading based on fantasy gambling? are derivatives just instruments of a public roulette table? does stock trading have any substance whatsoever? i just cant seem to make the link with stock and enterprise.. why do stocks appreciate (beyond the normal forces of supply and demand)? why do we even demand them? is it not the case that ULTIMATELY the company must either buy them back or pay a dividend?

John answers:

You are making the assumption that because a stock does not pay a dividend now, it never will. This is wrong.

If a stock has earnings, and it has opportunities to invest those earnings in itself and it does, then the company grows. When the company is more mature, those opportunities are fewer, so it will start to pay out the earnings as dividends. Part of the value of a stock is the right to collect future dividends. The other thing is, as a company grows, it accumulates assets. These may be patents or hard things like equipment and real estate. These assets could have value if someone were to purchase the whole company in a buyout.

Linda asks…

Do you agree with President Obama’s decision to tax Wall Street transactions? Should such a tax be permanent?

According to The Washington Spectator, “President Obama’s proposed tax on big Wall Street banks, to recover $117 billion taxpayers lost on the bank bailouts, is actually a fe. It’s revenue neutral, sets out to recover a specific amount of money lost in the bailout, and ends in ten years.” And it goes on: “Economists Robert Pollin and Dean Baker have crunched the numbers for a paper published by the Washington based Institute for Policy Studies. Looking at 2008 trading levels, they found that a broad based tax on trades of stocks and equities, bonds, and other instruments would raise $353.8 billion a year. Assuming that the tax might lower trading volume by discouraging highly speculative trading, the authors also calculated the revenues at 25% ($265.3 billion) and 50% ($176.9 billion) below trading volume.”

Oregon Congressman Peter DeFazio and Iowa Senator Tom Harkin have sponsored a transaction-tax bill. Would you support such a tax?

John answers:

I will support any measure that will repay the taxpayer funds Obama gave away. The tax/penalty should only apply to those organizations that benefited from the ‘give-away’. Prudently operated organizations should not be penalized. After the bill is paid in full, with interest, the tax should be discontinued.

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