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How a Company Benefits from the Stock Market

This is a bit of a more advanced topic, so make sure you first know what the stock market is and how it works before proceeding with this video. Assuming you have that foundation, then let’s get a bit more in-depth about the stock market; in particularly, how a company benefits after the initial sale of shares.

If you’re not sure what the stock market even is, CLICK HERE (http://claytrader.com/blogs/trading-101/), for many introductory videos.

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Transcript:

Got a great question from a YouTube subscriber,kind of how does the stock market work for, more so,the company angle.So this is definitely more of an advanced topic,but if you're still new to the marketsand you want to get that next layer in,then yeah, how do companies make money fromthe stock market?I already offered up a little reminder,but if you don't even know what the stock market is,I offer other videos for that.So make sure to go through that playlist,the trading 101, but this is like I said,more for, "Okay yeah, I know what the stock market is"and I get the very surface deep of what companies,"why they would do it, but what about that next level?"How exactly is a company benefiting from all this?"So let's first get to that comment and you can seewhat kind of got this ball rolling in my mind of,"Alright, yeah, that's actually a good question so"I want to do a video on it."So let's get to the comment, and again,it comes from YouTube.So this person says, "I see how the investors make money,"or lose, but how is the company affected?"I mean, once all the shares are bought at some initial"price, here the company makes some money,"are those shares just traded from one person to the next"and not affecting the company anymore?"Going forward I want to focus on one wordand that word isflexibility.I'm not the greatest speller,I think I spelled it right though.Flexibility, what do I mean by that?As this person alluded to, like I said if you have avery basic understand of the market,the whole reason a company goes publicis to raise capital.Meaning they are giving away portions of their company,if you did watch my original video they are slicingtheir company up into slices of pizza and thenselling off pieces of pizza.And for each one of those pieces of pizza,they're gonna bring in some amount of money.But as this person says,"Yeah, I get that, they're selling off initial"slices of the pizza, initial portions of their company,"they're getting money for that,"but then what happens after that?"Yeah, the market is just trading back and forth,buyers and sellers and values are gonna go up and down.Again, I have more videos on what exactly isdetermining those prices, but it's a free market,supply and demand of those prices.But what's in it for the company?How is the company affected of that?Well the other key word is value.That is how the company is affected in kind of anindirect way because it matters, but then it doesn't matter,the flexibility is the little bit more practicaland I'll get to that in a second.But value, obviously if a company's stock priceis really, really high then that means their valueis going up that much more.The higher a price goes, the more and more valuepeople have associated with that company.Hopefully that makes sense.I mean if something, anything in life,if someone were to tell you,"That keeps going up in value," you're thinking,"Oh, people must be feeling very good about that."So that is what the share is out there doing.The more people want to buy and the higherprices go, then people say,"Well that company's getting more and more valuable."There's more value associated with it.But why does this matter?Why does a higher value, meaning higher share prices,so if ABC goes from, let's just say $20and now all of a sudden it rises in valueand now those shares are sitting at $45,what does that allow them to do?They can get, they're gaining flexibilityin terms of, you know what?I see company XYZ down here.They kind of may be a future competitoror maybe I just, there could be a great synergy with it.But for whatever reason they have an eye on XYZ.And the way the stock market works is you havecompanies that go out and they buy other companies.So if ABC wants to go and buy XYZ,a lot of times they will use their own stockto buy a company.Usually it's a combination of both cash and stock,but they're using their stock.And their stock, in a sense, is it's own form of moneyand the higher the value of stock--So let me ask this, we'll see it through.XYZ, if ABC wants to buy the XYZ does it become harderor easier to buy it as the value of their ownstock goes up?ABC's stock.So ABC's stock is going up and up,does that make it easier or harder to buy this?I hope you're saying that makes it easier to buy itbecause as their stock price goes up,ABC is becoming more valuable.So if they want to go and buy this,it's much easier to buy XYZ with, let's just call it$45 bills in your pocket rather than $20 billsin your pocket.Whereas, let's say XYZ goes even higherand now all of a sudden they're sitting at$75 for a share and they want to buy XYZ with some shares.Now it becomes that much easier because instead of$45 or $20 bills they have the $75 billthat they can just start handing out to acquirethis company.So that is one way where the outside,where the company's not necessarily making anymore money'cause they've already sold their shares,if their value is going up then they can alwaysissue new shares, they can use shares that they still have.'Cause remember, companies that give away 100% of itself,they still have shares allotted and that is where itcan come to buy a company.So that is just one bit of flexibility.And other flexibility points, they can go out thereand if they ever need to potentially raise more money,they can get more money with that.There's different avenues that go with it,but the easiest example to kind of really showis just in the whole acquisition of things.If a company wants to go out there,acquire another company, purchase another companythan that makes it a whole lot easier.A very famous one that is when Google went andbought YouTube.Believe it or not YouTube used to be their ownseparate thing.And I don't know the details on it,maybe if you want to look it up and let me knowin the comments section, but when Google went to buyYouTube the founders of YouTube,I think they got some cash, maybe it was all cash.This could be a bad example.But in some situations, Google could've said to YouTube,"We're gonna give you X amount of shares."And then YouTube's thinking,"Alright, that sounds good to me because your company"is valuable."In fact, your company keeps getting more and more"valuable so if you give me shares,"then I think I'll make even more money as your shares"continue to go up."So there is a way where, within the market,shares can act as a currency in and of itselfwhere there's actually no physical cashthat exchanges hands.But that's why it really does matter,that's why companies care about their stock price.Even after they've sold stuff,that is where they're very focused on returning valueto things because they understand the higher they canget their share price,the more and more valuable their company becomes.And at the end of the day, yeah it's in the economy,but then you go start to get involved,"Hey, I want my company to be the most valuable."Hey, I want my company to get the most valuable."And then people are competing on value,which again is dictated by the share price.So, yeah, there's a lot of stuff that goes on afterwardsand maybe the company's not,"Well we didn't raise any money 'cause now just Bob"and Harry are trading shares back and forth,"and Sally."But at the end of the day they're keeping an eye onthe value of their stock because that's gonna dictatejust how flexible they can be in developing otherares of their business.If you're out there trading along currentlyand maybe are in the market looking for a communityto join to assist you in your trading or to just helpgive you another set of eyeballs,then I do have a private trading community whereyou can trade alongside me and other experienced traders.So what you see popping up on the screen right nowis both an information link,so if you click on the inner circle one that isgoing to take you to the page where I explain all thedetails of what exactly come with the community,both the chat room and the news letter.And then the other image that has popped up is abehind-the-scenes tour where you can see exactlywhat is going to be contained within the community.I take you through, like I said,a behind-the-scenes tour of everything and that wayyou'll know precisely what you are getting when you join.So definitely check that stuff out if you areinterested and thinking about wanting to joina community and let me know if you have any questions.

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