Is it really a market then if wall Street is investing in the flow of money in and out of a position rather than the company itself?

The only time you're actually investing in the company is when they IPO. That's what the market is primarily for, getting capital to companies that need it; after that however, the market also has to allow people to trade those shares with speculators otherwise there's no way to exit your investment. This secondary market is the other function of the market (what you just called investing in the flow of money in and out of a position). Both are necessary. Traders have always played the short term ups and downs, that's what makes them traders rather than investors and without them, there wouldn't be liquidity to exit your positions.

> that's what the market is primarily for, getting capital to companies that need it;

Personally, I believe that is incorrect. The amount of market activity related to getting capital to companies is dwarfed by other activity. As data points:

- Commodities markets don't allocate capital to companies (or farmers or whatever) at all.

- Most new stock sales (IPO or otherwise) happen outside of the public markets first, and are allocated to a minority of the market participants.

I think a much better way to think of the markets is as primarily about pricing risk. That this risk assessment function happens to provide a good way to allocate capital to companies is a by product.

You should perhaps read more than the first two sentences before replying.

> This secondary market is the other function of the market (what you just called investing in the flow of money in and out of a position). Both are necessary.

I clearly addressed that markets have more than one function.

I was reacting to the word primary. I think that is a common (especially on HN) misconception. The markets make more sense when you don't think of them as mechanisms to fund companies, and do think of them as ways to trade risk and liquidity.

I'm not convinced that the capital allocation component of the markets is even as you say "necessary". You could easily envision the markets chugging along fine without allowing any direct sale of equity to the markets. That is some intermediary would be required to buy the equity from the company as it became available and in turn could then sell that equity into the markets. We are almost to that point already.

> The only time you're actually investing in the company is when they IPO.

Well, no, anytime the company is selling shares you can invest in the company rather than the secondary market. The IPO is obviously the first such event, but it isn't necessarily the only such event.

Also, if there was no secondary market, people would be much less likely to buy at IPO and other times the company sells shares.

Right, but I did mention that.

Fair point, and true.

> after that however, the market also has to allow people to trade those shares with speculators otherwise there's no way to exit your investment

You are forgetting about dividends.

Traders != investors.

It's never been a market maker's job to invest in companies.

Are you saying that Wall Street should be taking larger proprietary positions? Not a criticism, just curious.

No offense taken. Idealist me thinks that Wall Street should invest in those companies they believe in and wish to assist in achieving their business goals. As an exchange, the investor shares in the profits and enjoys the satisfaction that they directly and indirectly brought prosperity to themselves and others.

If it is just about agnostic profit over assisting business expansion and creation than Wall Street is really is a casino than a market.

I would never knowingly invest in a tobacco company or an arms maker. (I am long the S&P 500) Some might feel okay with it since they are smokers and appreciate a strong defense but who is okay with a computer crashing a market becasue it was profitable?

I really appreciate your response.

>Idealist me thinks that Wall Street should invest in those companies they believe in and wish to assist in achieving their business goals.

It seems that the general trend is against banks taking proprietary positions. I guess my knee-jerk response is that I agree with that trend as I don't want my deposits used to fund someone's investment thesis. If I did, I would put my money in a mutual fund or other investment vehicle rather than a bank. At the same time, it's certainly not against the law for banks to make longer term investments.

>but who is okay with a computer crashing a market becasue it was profitable

I am certainly no fan of banks, but this does not seem like an accurate representation of their role in the markets.

"Wall Street" as popularly imagined - the world of big banks like JPMorgan, Goldman Sachs etc. don't invest in anything. Wall Street's role is threefold:

- Providing access to capital and dealmaking facilities for companies looking to grow or change ownership. That's IPOs, debt issues, mergers & acquisitions, spinoffs, corporate restructuring. Banks organize those deals and shop them around, acting as advisers.

- Facilitating trading of securitized instruments (public stocks, bonds, derivatives) by making markets or otherwise connecting buyers and sellers to exchanges or other counterparties. These buyers and sellers are the funds actually investing in individual companies and retail brokers servicing individual investors. The bank is neutral in its view of the issuers of the securities being traded, it just wants to see trading happen. (Sometimes this involves creating a specific instrument for one client and selling offsetting instruments to others, but again the intent is that the bank is not taking a position in that client.)

- Providing banking services to corporate clients. Loaning them money, helping them manage exposure to foreign currencies, and so on. The kind of stuff any retail bank does for its individual clients, but scaled up.

> Idealist me thinks that Wall Street should invest in those companies they believe in and wish to assist in achieving their business goals.

Your idealist premise is also a bit frightening if you think about it further: you're suggesting that an industry with a purely facilitatory role - i.e. offering access to public markets - should use some sort of qualitative moral judgement on who it should provide services to. That's a dark path.

Fortunately your industry does exist: it's called the buy side, and there are fund managers out there who will happily take your money, pool it with others, and invest according to a thesis they are legally obliged to share with you and stick to.

I think this characterisation of Wall Street is a little disingenuous. Just to use Goldman as an example: it's hard to claim that SSG, MSI, UIG, and others are acting in anything approaching a "purely facilitatory role" as you claim.

>> Idealist me thinks that Wall Street should invest in those companies they believe in and wish to assist in achieving their business goals.

Isn't that what the buy-side is for?