Newbie questions on stock market.

[Mac1958]

I've never had enough money to play the markets, and I'll admit I don't really know what they are. I always viewed the market as a game. You buy trading cards, and with random perceptions, your cards value could increase. I wonder if someone could help me with corporate structure. It puzzles me that stocks are viewed as ownership. Whoever buys the most wins, right. So if someone in China decides hey, I'd like a fortune 500 company, and I'm filthy rich, I'll just buy ownership? So do top stock holders sit on a board and pay the CEO who makes half a billion a year? Isn't that chaotic. Wouldn't ownership be fluid? Who creates a company they do not own? I apologize for my ignorance, but I'm curious how the game works. You have to love games where if you lose, you take a swan dive off a tall building.

It's really not chaotic.

Larger shareholders, whether they're on the board or not, have some influence. Yes, the Board of Directors does decide how much to pay to attract, keep and motivate a CEO. Ownership, via stocks, is always fluid, but typically the amount of stocks sold in a day or week or year are not enough to make a difference in the operation of the company. If China can buy enough shares, yes, they can gain controlling interest. But the chances of that, or of anyone else doing so, are very, very slim, and rare.

So the things you're talking about are just tiny currents under the surface.

The company was originally created by, usually, just a person with an idea. Apple Computer was created by Steve Jobs and Steve Wozniak in a garage. If they do well enough to take the company public, it's up to them to decide if they want to sell away their controlling interest in the company.

The purpose for the existence of a corporation is to maximize shareholder value -- make it so that total return (the price of the stock plus any dividends it pays) continues to climb. That's it. So, the CEO has to keep the Board happy. The Board has to keep shareholders happy. Therefore, because he sold away equity in his company, Steve Jobs had to keep the Apple Board happy. It's this tension that creates the energy within a corporation to innovate and progress and expand.
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