The Role of the Investor
September 4th 2007 11:54
Sometimes I wonder what the role of the investor is in stock market business. Since ownership and management of the business are in the hands of different people, and since we know what managers do, I ask what the shareholder does in a business context.
In a micro-business such as a café or a restaurant the owner of it is also its leader, manager, risk-taker and worker. But in big-business the shareholder is away from running the business or working for it being that someone else does it for him. So, what does the shareholder does with relation to its company?
In the primary market, when the shareholder buys shares from an initial public offering or from a rights issue, he finances the business; he provides the capital for its running. At this stage the shareholder is a co-entrepreneur, a beginner and a risk-taker. Companies could not perform, could not pursue their objectives, without this money from investors.
In the secondary market, though, the shareholder buys or sells shares from other existing shareholders, therefore acquiring or disposing of ownership positions within a particular company. At this stage, the investor shifts ownership of capital to and from other shareholders, that not interfering with the financing or running of the business.
That is, until you get a relevant position in the share register of the company and can take a seat in its board of directors. Then and there the shareholder becomes a business maker, not just the holder of a few shares.
Even when the shareholder is a mere holder of a few shares he is providing the company with liquidity. Liquidity is valued by equity traders since buying and selling is what makes their fees, but is also valued by the management of companies as a token of value going for their company.
What more the shareholder can provide a company with is stability of ownership. Yes, a shareholder that is determined to stay with his company, whatever the amount of his holding, but specially if its high, is benefiting the company with the stability it needs to develop its policies, specially long-term ones.
Such are the roles of the investor.
In a micro-business such as a café or a restaurant the owner of it is also its leader, manager, risk-taker and worker. But in big-business the shareholder is away from running the business or working for it being that someone else does it for him. So, what does the shareholder does with relation to its company?
In the primary market, when the shareholder buys shares from an initial public offering or from a rights issue, he finances the business; he provides the capital for its running. At this stage the shareholder is a co-entrepreneur, a beginner and a risk-taker. Companies could not perform, could not pursue their objectives, without this money from investors.
In the secondary market, though, the shareholder buys or sells shares from other existing shareholders, therefore acquiring or disposing of ownership positions within a particular company. At this stage, the investor shifts ownership of capital to and from other shareholders, that not interfering with the financing or running of the business.
That is, until you get a relevant position in the share register of the company and can take a seat in its board of directors. Then and there the shareholder becomes a business maker, not just the holder of a few shares.
Even when the shareholder is a mere holder of a few shares he is providing the company with liquidity. Liquidity is valued by equity traders since buying and selling is what makes their fees, but is also valued by the management of companies as a token of value going for their company.
What more the shareholder can provide a company with is stability of ownership. Yes, a shareholder that is determined to stay with his company, whatever the amount of his holding, but specially if its high, is benefiting the company with the stability it needs to develop its policies, specially long-term ones.
Such are the roles of the investor.
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