Tuesday, October 28, 2008

Are stockholders necessary in a company?

The necessity of stockholders cannot be overstated. Stockholders not only provide the company with capital, but they also steer the direction of the company by electing directors, voting on issues affecting the company, and providing a “thermometer” to gauge the company’s relative success. What I mean by that is that the purchase and sales of shares is a fairly good indicator of confidence in a company’s strength, strategy, financial health, and leadership.  A good company that is strong strategically, financially sound, and possesses good leadership will attract investors to take an ownership stake, and the “thermometer” rises in temperature (price). On the other hand companies relatively weaker than its competitors strategically, financially, and poorly managed will not attract new stockholders, and will likely lose existing stockholders. The “thermometer” falls in temperature (price).  

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