Allocation:
(1) stock market rebalances share prices somewhat well, which means that
(2) companies who produce more growth are valued more highly, which means that
(3) those companies, which frequently hold some sellable stock, can receive more money from investing those stocks, which means that
(4) the economy grows more.
So since the stock market allocates resources well (in comparison to old people making deals on golf courses). I'm not too convinced by step 3. Companies focus too much on making shareholders happy, who often have their own short-term deadlines.
Convergence:
Given how quickly stock transactions are made nowadays, we can assume that the prices converge pretty quickly. As an extreme example, suppose a war started a day ago. In the past, people could hide this fact from you when you made an investment if you didn't read the newspaper in the morning. With the stock market, you can assume that the price of a stock reflects nearly all publically available info. You don't need to "do your own research"
Investment Fairness/Efficiency (not sure word would describe this):
Investing in companies directly is more "efficient" than investing in a bank or bonds. You don't need to give money to some large investment firm, which takes their cut before directly investing in large companies. The "shortest path" (path with the least middlemen/overhead) to investing well often involves the stock market. You don't need to wait for the government to slowly do something with your money. You get to take advantage of all the research that people have done to make the stock market prices reasonable.
I've only taken a college class on finance so this is a question I also want to know as well. How does the stock market (or secondary market in general) truly benefit the economy and what are it's limitations?
Allocation: (1) stock market rebalances share prices somewhat well, which means that (2) companies who produce more growth are valued more highly, which means that (3) those companies, which frequently hold some sellable stock, can receive more money from investing those stocks, which means that (4) the economy grows more.
So since the stock market allocates resources well (in comparison to old people making deals on golf courses). I'm not too convinced by step 3. Companies focus too much on making shareholders happy, who often have their own short-term deadlines.
Convergence: Given how quickly stock transactions are made nowadays, we can assume that the prices converge pretty quickly. As an extreme example, suppose a war started a day ago. In the past, people could hide this fact from you when you made an investment if you didn't read the newspaper in the morning. With the stock market, you can assume that the price of a stock reflects nearly all publically available info. You don't need to "do your own research"
Investment Fairness/Efficiency (not sure word would describe this): Investing in companies directly is more "efficient" than investing in a bank or bonds. You don't need to give money to some large investment firm, which takes their cut before directly investing in large companies. The "shortest path" (path with the least middlemen/overhead) to investing well often involves the stock market. You don't need to wait for the government to slowly do something with your money. You get to take advantage of all the research that people have done to make the stock market prices reasonable.
I've only taken a college class on finance so this is a question I also want to know as well. How does the stock market (or secondary market in general) truly benefit the economy and what are it's limitations?