What happens is your money goes to whoever owned the shares and they use it somehow. That same money could theoretically be used to buy shares infinitely, except for fees, and the company would see none of it.
The effect on the company though is demand will drive the price up. Shareholders like higher prices so tend to reward CEOs who get them. This (hopefully) leads to an efficient company where they try their best so shares go up in value due to present or expected future performance which is good for the economy on the whole compared to having a bunch of inefficient companies.
If you have $100 million dollars, and you're investing in the stock market purely because that's the way to get the highest financial return, that is not rational, unless money is literally the only thing you care about. Presumably there's something else you care about, like the environment, or some political movement, or eradicating malaria, in which case investing all of your money in making more money is not the best choice. You probably still want to invest some of it, to maintain your lifestyle and maintain enough cash to use for the stuff you really care about.
At te very least with a good chunk of it. Again diversification is good.
This is the crux of the issue. If you have $100 million and you can't think of a single worthwhile use for any of it besides making more money, that's either a literally unbelievable lack of imagination, or incredibly cruel. It is so, so easy to do a huge amount of good with that much money. It's not easy to figure out how to do the most amount of good possible, that's probably an unsolvable problem, but it's not necessary.
I understand that investing in the stock market is supporting the economy and increasing liquidity and potentially helping a company and that's all good, but it is laughably easy to think of something better, if you don't need to worry about a financial return.
After all, you wouldn't want me telling you how to spend your money.
Something of it smacks of hypocrisy. I think you should be guilted into donating 5% of your wealth by that reasoning. Yeah you don't have 100M, but just like them a 5% donation won't materially affect your quality of life. How do you feel about that? Do you still feel it's anti social behavior not to do that?
Because I call hypocrisy otherwise.
Only if you pretend that all stock trades happen when new stock is issued. That definitely isn't the case. As far as I understand there is a lot of trading between portfolios, where the company that originally issued the stock doesn't necessarily benefit except by increasing the value for future stock issues.
Why is that better than these companies living off their profits, and their loans? You talk about it and if it's a given. It's not.
That's a straw-man. I've said nothing questioning capitalism. The stock market isn't a necessary component of capitalism any more than subprime lending is.
The cost of the stock market is clear. The stock market causes and amplifies inequality. This isn't controversial.
But I find proponents of the stock market have trouble defending it, when asked to really be clear about the benefit to society -- to people.
The stock market, no, but the ability to invest/allocate capital is quite fundamental to capitalism. The stock market is merely one incantation of that. Let's take your criticism as only pertaining to the stock market.
> The cost of the stock market is clear. The stock market causes and amplifies inequality. This isn't controversial.
I'm not going to give you that one. The stock market enables the public to invest in these companies. That's why they're called public companies.
If you ditch it, suddenly only wealthy venture capitalists can do that. This has been happening more and more with companies starting private longer and longer thanks to abundant private capital that doesn't bring the onerous regulations of being a public company. Unfortunately that seems to be increasing inequality, as the public has been cut out of these kinds of riskier but high growth investments.
I'm sure there is a better way of doing it, but it isn't as cut and dried as you suggest.
If you invest your capital, it's not being hoarded in a money bank like Scrooge McDuck. It's being put to use by the companies and institutions you invest in to provide products and services.
Now I'm all for donating to charity, and it's a much better option than leaving massive wealth to your offspring, in my opinion.
But investing your money is totally rational at any wealth level and it's good for society, and necessary for capitalism to function.