Why Is the Stock Market Important?

Video Transcript

"I'm Roger Groh. We're here today to talk about the stock markets and why they matter, and why they're important. Well, it's a big topic, but we'll break it down into two parts. Number one, as an operating company, frequently, you need cash in order to grow your business. One of the ways that you can get cash is to sell some of your own stock to other people and then make it easy for them to buy and sell that stock through a market, in this case a stock market. Second, you have to incentivize key employees. I mean you want to make sure that they're firmly on board, on they same side as the customer, and their long term interest is in raising the price of the common stock. In order to do that, having a fair and open market available which brings back all of their efforts into a price really matters because their livelihood depends on the value of that common stock going up, which puts them firmly in all of the shareholders camp. And really there is a third part. You can also participate in the growth of that business. And why is that important? Because as you start to think about what to do with the assets in your 401K plan, or perhaps your profit sharing plan or defined benefit plan, you can invest in real estate, you can invest in commodities, you can invest in bonds, but also you can invest in stock. It's pretty hard to do that when companies are private. When companies are public, especially in the major markets. Let's say the G7 markets, which would include US, France, Germany, the UK, Hong Kong, which is in G7, Tokyo. And those would be the major markets. Generally, the financial data coming out of those countries is well disseminated and for the most part on the up and up. As a result you can rely on the data being released from the companies as to the health of their business. Really, the role of a well-governed stock market is to be sure that the investor or potential investor really understand what's happening in those companies. In some countries, that's not true. The stock markets don't put much pressure on companies to release accurate financial data, and quite often, you have erroneous data being released or no data being released and it's very hard to make an accurate investment decision in those markets. So why... you know, what's the purpose of the stock market? Well, it's a place to buy and sell stock, but it's also a place to go where you can rely upon the information that's being released by companies as governed by the law of that country. I'm Roger Groh, and that's why stock markets are important."