This has been my outsider observation of what I believe the stock market does to a company that is publicly traded. I am hoping to get insight into weather I am right or wrong or if there is much more to it than my simplification:
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PROFIT IS IRRELEVANT: The fact that a company is continuously profitable means nothing to a shareholder. GROWING is all that matters. If a company continues to earn a steady profit, then it makes no change to the value of a share (and doesn't make share holders happy).
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IT IS GAMBLING: At the basic level, a company continuing to grow forever is impossible. So every stock holder is essentially gambling that they will ride a stock in a certain company and right when it starts to make that eventual decline (due to a change in the market or they hit the saturation level, etc) they hope to sell. Stock holders are hoping to guess right more often than be on the wrong side of a company's decline.
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IT CAUSES COMPANIES TO DEVOUR THEMSELVES: The continuous demand for growth over profit starts to change a company once they've hit the eventual peak. Now, to keep the appearance of growth, they turn on themselves and cut costs internally. Maybe they can eliminate benefits, pay workers less, layoff management roles and hope the workers keep going without supervision, sell off assets to show a short-term growth for a quarter only to wind up a shell of what the company used to be. I'm thinking of IBM as an example (from my limited understanding of the company that used to be a juggernaut of business).
Maybe there is an aspect to the stock market and the nature of being a publicly-traded company I am missing. Please help me understand if that is the case. If I am right, please tell me so I can stop just wondering.
Submitted July 03, 2016 at 01:24AM by perpetualjon http://ift.tt/29Dr2rD
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