Beppe Grillo's Blog

Riding the Stock Exchange

image: corpwatch.org

The Stock Exchange is finally taking off again. This is demonstrated by the new entrants and a host of hopefuls knocking at the door. They are asking, they will be asking for more. For investments, for the future, for us.

The reason why a company wants to get quoted on the Stock Exchange is obvious: to get money. And the bigger its debts the more it asks, the bigger its negative balance, the more it needs. It finds buyers for its shares through the banks, through the newspapers, through investment funds, through the counter clerks, through the financial advisers, through advertising. Those who get to the Stock Exchange are those who want your money or are those who have none left. Does it seem possible that a company that has never had profits can get quoted on the Stock Exchange? That a company with a frightening level of debts can be on the Stock Exchange? That a company with a single client can be there? That’s what happens.

The ones who gain like this are the certifiers, those who testify to the strength of the balance sheet and of the business plan. The banks who place the shares gain. The self-nourishing system gains: Consob and the Italian Stock Exchange. Managers gain with stock options. Those shareholders who straight away cash in their shares, gain. That way they don’t risk future losses if the share value falls.
After Calciopoli {investigation into the football scandals} (but has it happened yet?), we’d need a Borsopoli {investigation into Stock Exchange scandals}. That would be so wide-reaching that all the rest would seem like nothing.

A hole bunch of little companies external to the Stock Exchangethat control the big groups, of Chinese boxes, of shareholders that have power but no money, of conflict of interests between companies that are clients and suppliers, of Directors who are on more than one Board, of the lack of regulations that protect the investors. Without class action, without transparency.

But journalists, the true ones, are on our side.
Like Daniela Braidi of La Repubblica who on Monday advised the purchase of Telecom Italia shares that have lost 10% of their value since the beginning of the year and have been loosing value anyway since Tronchetti appeared in 2001. She uses this fascinating turn of phrase: “the shares of the telephone company appear to be more attractive after the sharp correction of the last year and a half”.

An innovative way of reasoning.
According to the article, if you’ve already been taken for a ride, there’s the reasonable probability that it won’t happen again.

Comments

The reason a company wants to be quoted on an exchange is to raise money and, later for liquidity. The larger the exchange, the more liquid the shares.

Posted by: Shawn Howard | June 18, 2006 10:38 PM

Yes, there are many pitfalls and the average working person really should be very cautious when it comes to investing directly. Like most things in life, the more research and checking you can do the better. The best single piece of advice I give is to invest in what you know and trust. If you like the products or practises of a company, then that is often the best guide; like any kind of shopping you will gravitate to what works best for you.

John

Posted by: John | June 15, 2006 05:20 PM

Thank you John for your good explanation! I know that the stock market is not bad in itself, but I saw so many normal working people, who was attracted by easy money and lost eveything on stock market! I think it's a field for insider!

Posted by: Raffaella Biferale | June 15, 2006 05:07 PM

Raffaella,

The main thing to know about the stock market is that you are buying into the debt of a company; shares are issued as way of generating cash for the company. At the time a company goes into the market they lose control of the value of their debt. Any surplus ie profit, usually goes back to the owners of the debt as a dividend. Think of that as interest. Any loss is, well, a loss on paper. Markets have operated through most of human history, they're just can be more abstract now.

In itself the stock market is not a bad thing; companies, especially small innovative ones, need a way to generate cash. Rather than do that through an expensive bank loan, they get a "loan" via a stock issue. Individuals or companies buying stock in a company should be the sign of a healthy economoy; people wishing to invest in the future growth of small local companies; and trusting that their government will protect them if the company tries to defraud them.

The problem comes when fraudulently run companies eg Enron, lie and cheat their share holders. Additional problems are when governments collude with large national institutions to defraud. There have many of these in Italy the last few years, I need not itemise them. The fact the Berlusconi made financial fraud not a criminal offense beggars belief.

Lastly, before you think that you don't have an interest in stock markets, bear in mind that if you have any private pension or related investment, that you are indirectly in the market anyway. That's where they invest your funds generally.

Lack of interest shouldn't mean lack of knowledge ;-)

John

Posted by: John | June 15, 2006 04:45 PM

In the Stock Exchange we put money to speculate in someone else business, this is the base of this market. Beppe what's wrong ? The problem is that the small investitors lose many ! In all playes the small players are loosers...in the poker too !

Posted by: Francesco Baldi | June 15, 2006 12:58 AM

I don't know the first thing about Stock Exchange, but if they want my money they will be disappointed!
:-)

Posted by: Raffaella Biferale | June 14, 2006 09:06 PM