Jack Bogle, the creator of the first index fund, says
The stock market has nothing—n-o-t-h-i-n-g—to do with the allocation of capital. All it means is that if you’re buying General Motors stock, say, someone else is selling it to you. Capital isn’t allocated—the ownership just changes. I may be an investor, you may be a speculator. But no capital goes anywhere. This is basically a closed system. You have new IPOs and whatnot, but they’re very small compared to this vast thing we call a market
My response to this has always been... if that's true, what is the point in all of this? It's a mechanism that predicts the success of companies, but plays only a very small role in investment? Could we get that money to do something better, then?
Was this supposed to be an answer rather than a comment?
It's helpful to spell these things out, but it doesn't bring me closer to an answer, these are the things that I'm thinking might not be very efficient, most of the money seems to spill into the laps of speculators who are just not using it nearly as well as the company would?.. (If they are efficient investment mechanisms, I will need to see a more detailed argument before I'll understand)
One thing to notice here is that most companies can only benefit from the appreciation of their stock by creating... (read more)