Other than the jobs for fund managers and the like, when you invest in a mutual fund, IRA, 401k, etc, are jobs created in the industries or at the companies within the fund in which the investments are made?
Not directly, for the most part. Your investment will largely go towards buying stocks and bonds which have already been issued, not towards subscribing for new ones. So if you buy shares in the XYZ Manufacturing Corporation, your money doesn’t go to the XYZ Manufacturing Corporation; it goes to an existing stockholder of that corporation who has stock to sell.
Of course, the fact that there is all this trading in stock going on means that, when XYZ Mfg Corp wants to raise capital by issuing new stock, there is a market into which they can issue it. Plus, your demand for stock helps to keep up the price of stock, and so increases the amount which people will pay for new stock and so makes it that bit easier for XYZ Mfg Corp to raise capital by issuing stock. And, probably, some of the time, some of the money you put into your investment fund does go directly towards subscribing for new stock. And, if your investment account also invests in bonds, all the same comments apply to the bond market.
Only in the most indirect sense. Investments buy stock in the companies. That money goes to the actual companies only once, when the stock is first actually issued, and none of the later trades put money into the company’s pockets.
A company whose stock price is declining may have problems getting any banks to lend them money - and virtually every publicly traded company runs on bank loans. Stock price is one of the indicators of corporate viability that banks use. That’s as indirect as you can get, though. For most practical definitions the answer to your question is no.
If somebody wants to buy into the IPO of ABC Vaporware but all of their money is tied up in XYZ Mfg Corp, then your purchase of their XYZ shares from them makes it possible for them to invest in ABC.
There is no fixed relationship between the type of investments you describe and job creation.
Except to the extent that if nobody made those investments the economy would freeze to death and nearly all existing jobs would be lost.
…or we’d figure out other ways to raise capital, probably more expensive ways. That would raise hurdle rates by some amount, reducing purchases of machinery and the like somewhat.
Yes, those type of investments do have some fixed relationship with job loss. Interesting eh?
This is exactly correct.
Well, it can be nitpicked a bit.
This is generally true but not universally true. In bad times, speculators - who are merely investors that other people dislike - will drive down the price of stock by short sales. (Heck, even an investment firm downgrading a stock can have this effect.) This makes it harder to issue new stock and harder for the company to raise capital.
The notion that the sale of stock is for the benefit of the company is no more than a piety. It’s for the benefit of the investor, and that sometimes is devastating to the company itself.
I’m not disagreeing with the bulk of what UDS wrote. The world of corporations as we know it today can only work if most people look favorably on stocks to appreciate over time. But at any given moment, any given company can be sunk when it loses favor. That’s as much a part of the market as the good stuff.
I think the OP was implicitly talking about taking long positions. To be honest, and I mean no disrespect, I find a lot more to nitpick with your previous post.
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A company whose stock price is declining may have problems getting any banks to lend them money - and virtually every publicly traded company runs on bank loans. Stock price is one of the indicators of corporate viability that banks use. That’s as indirect as you can get, though. For most practical definitions the answer to your question is no.
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Most bank loans are not made with any relation to the stock price of a company. I am specifically talking about bank loans (i.e. the revolving line of credit that most companies have). A typical bank loan is based upon asset coverage ratios, EBITDA multiples, or something else directly related to the historical or projected financials of a company. I have never seen a bank loan with any covenants related to the stock price of the company (not saying they don’t exist, but they are at the least rare). Secured and unsecured note or bond offerings are of course not bank loans, but they too usually have no relation to the stock price of a company except only in a very indirect sense. Sure, if a company’s stock price is plummeting, the lender will naturally be a little spooked and probably take a second look before lending money, but they are primarily lending on the assets or cash flow of a company.
Of course a big exception to this would be some sort of bridge financing where the loan is short term in nature and expected to be taken out by an expected equity issuance.
Additionally some banks use, as a part of their credit process, tools such as Moody’s KMV ratings which are affected by stock price fluctuations. I have never seen a bank that gave them a real serious role in the credit approval process though.
Feel free to educate me though if you think I am off base. My experience in lending is generally limited to sub investment grade credits in energy (significant experience), general corporate (moderate experience), and commercial real estate (limited experience).
I don’t see any restrictions to long-term investments in the OP. Most fund managers move in and out of positions in stocks and everything else. Not much is done in the long term these days.
I was using stock price loosely as part of the overall financials that a bank would look at when evaluating a company. You’re right that no bank would offer loans based solely on stick price. That was my point: that the connection is so barely tangible that you have to stretch to make it at all.
Not a long-term investment; a long investment.