What is the difference between borrowing money from a bank and issuing shares of stocks? Borrowing is a less messy way of raising capital, first of all. A company will need only to satisfy a bank’s requirements whereas, issuing shares will involve so many people who have a stake in the company’s stability or ability to grow. Of course, there is the loan interest which may deter a company from getting sufficient loans or from handling the payment of the loan based on its profitability. Issuing stocks, although it frees a company from paying interests also involves a lot of risks plus the concomitant burden of maintaining a company’s profitability in order to enhance its share price – a duty to its investors. Social and political conditions will impact on the value of stocks. But in the same way, these forces will also affect the profitability of a company that opts to take out a loan. Generally speaking, of course. For even in times of calamities or disasters or even economic crises, there are companies that may thrive on those adverse conditions, such as funeral homes during a tsunami or hospitals after an epidemic. Exceptions aside, the choice between borrowing and issuing stocks is a policy decision that may involve more than financial factors. Apple is one of those companies that do not issue dividends to its investors and yet has shown consistent financial health for many years. People still buy their shares because they know the value of the company from its track record of excellent performance. In such a case, borrowing is out of the question; unless, of course, the company or, any company for that matter, needs a substantial amount of money for expansion. It may issue more shares to augment its capital needs; but it will diminish the shares held by the majority owners who may not want to part with that clout. In fact, it may borrow money from a bank in order to buy all out the shares from investors and gain more or total control over the company.

Money has no emotions. It is as dead as the tree it came from. And, yes, it makes the world go round. Unless we learn the tricks of building wealth, we will see only dead trees and not money.

So, which is which? Is the stock market a legitimate channel for creating wealth or just another playground for the rich to make more money? Perhaps, we will never know. As long as a gambler takes home some winning now and then and has fun playing, what does it matter if the casino earns millions?

“The stock market only establishes the price of a stock, not its value. Value is evaluated by diligent evaluation of a company and its financial statements.” The stock market works on the basis of the price of a single share of stock. This is essentially the “tag price” in what is called the giant supermarket that is the stock market. Beyond that “tag price”, however, is the concept of the value of a company. We can see here the root of the stock market’s existence and potential source for creating wealth for people. When a company undervalues its share price, it is for a particular reason or certain reasons only known to the company. We can only surmise what those reasons are since the website does not go into the matter in depth. The main possible reason is what we believe keeps the stock market alive: To allow investors to discover for themselves the real value of the company based on a meticulous evaluation of the company’s true worth. This is the “scientific” side of stock market investing. What is also called the “fundamentals”. But at first glance, undervaluing the share price is counterproductive. Why should a company do that when the primary purpose of issuing stocks is to acquire capital for business expansion? Or is this used as an excuse to favor certain investors who are in the know and thus gain substantial profit in the future when the company’s share price has significantly risen? This further abets the suspicion that the stock market is really a kind of card game which favors the card dealers and not the players. But, on the other hand, undervaluing the share price can be utilized as an opportunity to attract investors. It is no different from introducing a new product at a promotional price in order to attract more buyers. This is a common business strategy and could be the real motivation for new companies issuing shares at bargain prices. At par value or at overstated share prices, a company’s stocks will have a more difficult time getting more buyers than if it issues shares at undervalued prices. This is a more reasonable motivation for this apparent strategy taken by companies

The stock market is a barometer of a nation’s health and wealth. Like it or not, it determines the level of confidence that people have for their institutions. When people cease to participate in this vital engine of wealth creation, the whole structure of a modern nation ceases. We will be turned back to the barter trade system and the guild system of producing goods of the ancient times. We will still survive; but we will be in the dark ages once more.