One may assume they understand the stock market but observation of many investors reveals something different and that includes mutual fund managers, advisors and the media. 

​

That might seem rather heavy, but let's proceed. Some content is below, but there is more coming. Much more. 

​

1. Why do companies "go public"?

2. Exchanges are like a shopping mall.

3. Dutch auction bidding process.

4. Securities laws.

5. Primary market and the secondary market.

6. The financial services industry: Everybody has a motive.

7. The stock market has a significant impact on the economy.

​​

Why do companies go public?
 

• The capital markets are a huge network, providing significant opportunity for financing(s). 

• A publicly traded company may use stock for acquisition purposes rather than cash.

• Stock and stock options are used to attract employees. 

• Exit strategy for the private company investors including founders and angel investors.

• Exit strategy for private investors in the company.

• Notoriety or vanity.

​​​

Securities Laws​

The public markets are intended to provide investors with a higher level of transparency and disclosure. 

​

In order to target fairness it has been standard practice for companies to report earnings results when the stock market is closed. All material developments require disclosure and disclosures are to be made publicly, only, when the market is closed. If disclosure is required when the market is open, the company is required to ask the exchange to halt trading until the news is released. 

​​

The Financial Services Industry

Mid and large size investment dealers typically have a research department with analysts covering many if not most sectors in the economy. The purpose of the analysts is two fold.

1. The research is used by a dealer's institutional sales desk and retail division to support selling stock ownership especially if trade commissions are generated.

2. Investment banker work is quite lucrative and as such they will seek financings, merger work and other consultation work. 

​

Publicly traded companies may have analyst meetings and management will routinely interact with analysts on a one-on-one basis. It is in the interests of the publicly traded company to have strong stock performance so they want the analysts to produce research that has a positive viewpoint with a buy recommendation. They certainly do not want a sell recommendation from an analyst and since the analyst's job is tied to the firm's investment banking objectives, they rarely put out a sell recommendation. 

​

Securities regulators made changes to industry rules to deal with the lack of sell recommendations and while some sell recommendations may be found, those are generally on company stocks where there is little or no opportunity for investment banking deals. 

​

Managed accounts

Managed accounts are retail accounts managed by an approved person with discretionary authority. The Advisor does not call for approval on any transactions. They tend to be buy and hold accounts in order to keep transaction costs down, same client communications lower and free up the advisor to open more accounts and increase their so called book. Their objective is to increase total assets under administration, not trade the capital.

​

Advisors overseeing commission based accounts have an incentive to generate transactions in order to produce commissions. Commission based accounts are far more likely to have a higher churn rate than managed accounts. 

​

The Regulators

​

​

 

              More is coming and you may anticipate it will be quite juicy. Oh ya.