Any Stock Broker-Bankers here

[HUSKER55]

The value of a stock is what a willing seller will get from a willing buyer. Is that correct?

The value of a stock is the right to a share of the dividend. Is that correct?

The only real value a share of stock has is the initial value of the stock, Is this the amount of money a company receives? Is that correct?

If you were a fortune 500 company and you needed to raise capital you could issue new stock. But if the market is "maxed out" then you wouldn't get any money until someone had a reason to buy your stock. Is that correct?

The easiest way to do that would be to get rid of the original stock. Is that correct?


If the original stock is $10 and it is now selling for $100 that $90 is a paper figure. Is that correct?

My question is this. Exactly what does this $700 Billion represent. The actual value of the original stock or the paper value which doesn't exist?

Or neither???? Who is losing money and where?

Thanks

husker55

[robert99]

1. The value of a stock is what a willing seller will get from a willing buyer. Is that correct?

Yes as long as the buyer can pay now and with real money

2. The value of a stock is the right to a share of the dividend. Is that correct?

No the fundamental value of a share is a proportion of the company net assets and future net earnings. The real value is always what you asked at (1)

3. The only real value a share of stock has is the initial value of the stock, Is this the amount of money a company receives? Is that correct?

No real value is as defined. The initial amount of money that capitalises a company is just what they started with eg software company starts in garage. Companies grow and reinvest profits and buy other companies - their assets and earnings grow if successful. So if the original stock certificate numbers remain the same each stock rises and rises in real value.

4. If you were a fortune 500 company and you needed to raise capital you could issue new stock. But if the market is "maxed out" then you wouldn't get any money until someone had a reason to buy your stock. Is that correct?

Yes in theory but they usually employ an investment bank to underwrite the shares at a price the IB advises. If the market does not buy all the shares then the MB buys the remainder.

5. The easiest way to do that would be to get rid of the original stock. Is that correct?

No, if the company sells its stock the price plummets and who would have any confidence that the company was worth buying into. Shareholders own most of the stock in any case.


6. If the original stock is $10 and it is now selling for $100 that $90 is a paper figure. Is that correct?

No, (1) applies. $100 cash is real cash.

7. My question is this. Exactly what does this $700 Billion represent. The actual value of the original stock or the paper value which doesn't exist?

Or neither???? Who is losing money and where?

The £700B is just a budget figure that authorises an ability to spend.
If banks choose (they are no forced to do anything) they can offer "troubled assets" to be bought at a knock down price. They may choose not to as the decision makers will then lose their fat bonuses etc. Should the "assets" ever recover, then they can be sold at a profit, if they don't recover then the US taxpayer loses for years. If the banks don't start lending soon then US and rest of the World economy loses even bigger time - frozen lending is like a human with their arteries clogged. The bail-out is not much different from plugging coins into a Las Vegas fruit machine - it is based on hope and prayer. No one on the planet has more than a rough clue as to what the full details of the problem are, what will happen or what needs to happen. Sub-prime is only one aspect - Credit Default Swop gambles that lost and Private Equity debts that cant be serviced are all in there and banks are hoarding every cent to have a chance of surviving. One group who will not lose out and that is the bankers that remain - never in history has so much money been thrown at them with so little accountability.

[HUSKER55]

Thanks for your reply. I appreciate it


husker55

[RaceBookJoe]

Husker...Robert gave you a good answer, but dont forget this...and it is just as important......the stock market is really just a picture of human psychology. To me stocks have nothing to do with the underlying company....only in the perceived value at that moment. Think about it....when GE was around $40 and now around $20.....is GE really half the company that it was? McDonalds, whether at $80 or $10 the company is still the same..making burgers and fries. Basically what I am saying is that many times the "stock value" and the "company value" arent in harmony...its just the human perception at the time. Hope that made sense. rbj ps let me add that yoru first question is the key....a stock is only worth the buy/sell point.

[ddog]

I think that many companies over time have become half what they were but it takes "events" to force the herd to change their perception.

it is easier to play along and profit at the time , than to take a hard look at what had Ge(for instance) really become in the Welch days.

In my opinion , a fin services company with sidelines in actual real industries.