What's the benefit to society of stock speculation? [edited title]

It seems to me trading in stock is just making money on other people’s work, and I can’t see the value it adds to society.
I do see the value when it comes to investing in small businesses, or giving workers a share in the company, but when that stock is resold, as far as I can see, the wrong people are making money. Shorting seems suspicious to me - daytrading I can’t understand how is even legal.
So, what is the service to society that wall street brokers are being paid top dollar for?

Agreed 100%.

Many, many more people invest in companies, large and small, when they are confident that a secondary market for securities will exist and make their investments more liquid.

What’s wrong with having someone serve to facilitate buyers and sellers coming together? Do you also have a problem with real estate agents?

Without an open stock market only the very rich or powerful would be able to trade in stocks, meaning only they would be able to own companies.

Whenever someone says, “those [fill in the blank] are making outragous profits”, I have to wonder why that person doesn’t buy stock in that company, then they could make outragous profits too. Of course, we don’t all have the money to buy a lot of stock but if you are really convinced a company is making over the top profits, the stock market gives you the chance to put your money where your mouth is and get some of that action.

I’m not sure if you think stock is worthless or just stockbroking. If the former, then how would companies get money to start up? If the latter, who would be stupid enough to invest in something they can’t get out of. Do you object to stock price fluctuations? They are signals the market gives on the health of a company and the economy - imperfect signals, but still signals.
And with billions of shares traded internationally, you need a middle man who knows how the system works, and who works for the client.
There are plenty of things wrong with the financial system, but stockbroking isn’t one of them.

I don’t object to it, I have money in the stock market myself. But is true that short-term buying and selling stock does not create wealth, it just redistributes it. The guy who sells highs wins, and they guy who sells low loses. It is a casino, with some bets that are safer than others.

Bwuh ? What does one have to do with the other ?

I’ll readily agree that OP does not make a good case, but your oft-repeated argument is flawed for a few reasons. For one thing, you ignore that much profit is siphoned off to executives and other employees. If this point needs evidence, just consider the fates of stockholders in, e.g. AIG or Lehman Bros., compared with that of their well-compensated traders.

Yeah, but in each case you also have to account for the interests of the buyers.

The guy who is selling high has found a buyer who thinks that the security being sold is going to be worth more soon. The guy who is selling low has found a buyer who thinks that the security being sold is going to be worth more soon.

In each case, the buyers and sellers have completely different interests and views on the transactions. It’s good that there is a means to link up these people with substantially disagreeing views on the value of the items being bought and sold.

I realise of course there have to be some broking if we are going to allow shares at all, but what I find objectionable is making money on the trade, rather than on actually investing in companies, be that through work or financing.
Of course, it is hard to see how you can get broking at all without opening for the possibility that some might exploit it and make money off trading without adding value, but I still think it is a valid question to ask - is trading in itself adding any value to society, or are we just paying gamblers?

Again, do you also object to real estate agents? How about shopkeepers and merchants that also connect buyers and sellers?

I sometimes wonder about how rewards for trading in successful companies are distributed.

If I looked at a well performing company, and wanted to join in, seems to me that a portion of my purchase price should go directly to those who are making the company a success, instead of to another broker. None of the money from my share purchase actually goes into the company in a direct manner unless it is the original share issue, or perhaps a bond issue.

If my money does not go into the company directly, then all I am doing is sharing a risk, but not putting any real investment into it.

I might be using the wrong words here, a bit out of my element as you might have guessed. It’s not the agents I’m concerned about, but rather those who speculate in stock. Of course, someone has to connect buyers and sellers, and I suppose they’re only doing their job. What I object to is buying stock not with the intention of investing in a company, but rather to sell it at a higher price without having added value - unless someone explains how that practice is valuable.
Mods - feel free to change the op as appropriate.

What is your perception of how traders make money?

Do you have a 401k account or an IRA? Does it include equity index funds or bond funds? If so, then you are indirectly a trader. The majority of people in this country are traders. We are investing our long term liquidity for future use. We or the people we hire to do this on our behalf, speculate on the value of companies. And no, it’s not the same as gambling. In gambling you have certain odds that the gamble will go against you, based upon how many cards left in the deck, etc. left up to randomness. In stock investing, the events aren’t random, and the underlying businesses are working to make a profit and increase their value. Sometimes market conditions happen that go counter to the businesses plans, but it is much better than a random turn of a card or spin of a roulette wheel.

Traders add value to society, by putting money to work through investments that will ultimately earn a return for the investor, which may the trader themselves or their clients.

The concept of corporations is good; liquidity in trading corporate shares is good; facilitating such liquidity serves a useful public purpose. When buyers outnumber sellers, or view versa, speculators who (possibly using tools like short selling) facilitate the market serve a useful public purpose.

Where modern markets have gone astray is in letting the tail wag the dog. A large portion of the trades in today’s market are between market-makers, often using “hyper-efficient” methods like High Speed Trading. Such speculative activity does drain talent for little or no public purpose; indeed the excesses often do disservice as demonstrated by their roles in precipitating recent financial crises. Thus, OP is fundamentally correct though the point requires clarification.

(I’ve made this point in prior threads and been accused of deprecating stock traders. That is not my intent. I deprecate the system which encourages trading which serves little or no public purpose. A tiny Tobin tax would be a big win.)

The value you paid for that particular share of stock in the company, may not an original issue price, but it is an indicator of the value you place on that company and their ability to generate future profits. Why else do you think public companies follow the price of their own stock’s so much? The company can then count on the ability to raise future capital needed for growth or acquistions based upon the current value of their company. So it does have a very direct impact on the underlying company.

If I understand things correctly, the financial meltdown wasn’t due to stockbrokers in the traditional sense. The meltdown came from fancy financial instruments made up by non-stockbrokers. More importantly these fancy financial instruments were grossly mislabeled regarding their risk. Something to the effect of “This investment is super safe because equation X said so!”

Leverage, another term that I don’t think I fully understand, also seems to have something to do with it.

Stock in its most traditional sense didn’t seem to have much of anything to do with it. In other words, this wasn’t an Enron where they cooked the books to make the company look good and artificially inflate the stock price.

Am I naive? Are stockbrokers “the enemy?” (I’m asking seriously).
Let’s say I have a pile of money that I want to invest. How do I invest it without helping out The Evil? Or do I have to not invest it at all?

There’s a thread in the Pit right now that complains about people criticizing science without having the slightest idea what they’re talking about. It spawned a thread from me in GD about what the baseline knowledge for a reasonable adult is.

It seems to me that the stock market might be another area in which baseline knowledge is considered reasonable, given the comments above.

Here’s a simple analogy: does eBay give value to society? I’d say the answer is obviously yes. Twenty years ago, buying and selling collectors’ and rare items was limited to my local area. Now, if I want to make money from my signed movie posters of Theda Bara and my Gustav Klimt Beanie Baby, I can reach a country-wide – indeed, a world-wide – market of buyers. eBay creates and maintains an infrastructure that imposes rules of conduct on buyers and sellers and allows a framework for them to come together and buy and sell their merchandise. Society is richer for this marketplace.

But you’ll notice eBay is not a group of volunteers – and they would not have done so well if they were. eBay makes money on every sale. They charge sellers to advertise the items and charge them a percentage of the final sale price.

In the same way, stockbrokers manage the infrastructure that comprises the marketplace of buying and selling stocks.

Do you understand why there is value in buying and selling stock?

Actually, there have been proposals to tax various trades to try to reduce volatility, since many computer generated trades based on the expectation of a very fast and tiny change in price would no longer be economical with a tax.
But in general fees have gone down as competition has increased.
How would you propose to enforce trading for investment purposes? The capital gains laws already encourage longer holding of stock and other assets for better tax treatment. And how do you distinguish between a speculator and someone wishing to get out of a position he no longer considers a good investment?